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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1997
Commission File Number 1-2964
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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)
(415) 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 October 31, 1997: 62,836,571 shares, after deducting 16,901,891
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 September 30,
1997 and 1996, and the balance sheet as of December 31, 1996 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, 1996. 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.
On September 18, 1997, Transamerica announced a definitive agreement to
acquire approximately $1.23 billion of net receivables and other assets of the
inventory financing, consumer financing and international factoring businesses
of Whirlpool Financial Corporation for a total purchase price of $1.35 billion,
subject to final closing adjustments. On October 16, 1997, Transamerica
announced that it had completed the acquisition of Whirlpool Financial
Corporation's inventory finance business in the United States, Canada and
Mexico, as well as its international factoring business in Argentina, for $759
million in cash. The acquisition of most of the remaining assets of the
international factoring operations was completed by November 3, 1997, for
approximately $170 million in cash. The acquisition of the consumer finance
business, including Whirlpool Financial National Bank, a credit card bank, will
close separately upon receipt of appropriate regulatory approval.
On June 23, 1997, Transamerica sold its branch based consumer lending
operation as part of its strategy to redeploy capital while moving ahead with a
plan to build a new, centralized real estate secured lending operation. Gross
proceeds from the sale were $3.9 billion, or $1.1 billion after repayment of
associated debt. As a result of the sale, second quarter results included an
after tax gain of $275 million after taking into account writedowns of
intangibles and other items. In addition, real estate secured loans, non real
estate secured loans and foreclosed properties and other repossessed assets with
a carrying value of $171.5 million remain as of September 30, 1997 which will be
sold or liquidated separately. In October 1997, Transamerica Corporation
completed the sale of another $158.7 million of contractual finance receivables
and foreclosures in process for gross proceeds of $117.8 million subject to
closing adjustments.
* * * * * * *
Primary earnings per share were calculated by dividing income available
to common stockholders by the weighted average number of common shares
outstanding during the period and for the periods ended September 30, 1997 the
dilutive effect of common shares contingently issuable from the exercise of
stock options, using the treasury stock method. Earnings available to common
stockholders are computed by deducting preferred dividends and preferred stock
redemption costs from net income. The computation of fully diluted earnings per
share is based upon the weighted average number of common shares outstanding
during the period plus the dilutive effect of common shares contingently
issuable from the exercise of stock options, using the treasury stock method.
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For years and quarters ending after December 15, 1997 Transamerica will
report its earnings per share in accordance with the Financial Accounting
Standards Board's Statement No. 128 - Earnings Per Share. Previously reported
earnings per share will be restated. See Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations, for pro forma
disclosure of Transamerica's earnings per share computed in accordance with this
standard.
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, dividends declared on
preferred securities issued by affiliates and one-third of rent expense, which
approximates the interest factor.
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<TABLE>
TRANSAMERICA CORPORATION AND SUBSIDIARIES
-----------------
CONSOLIDATED BALANCE SHEET
Assets
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
Investments, principally of life insurance subsidiaries:
Fixed maturities $28,337.7 $26,985.9
Equity securities 1,666.2 1,046.0
Mortgage loans and real estate 757.5 745.5
Loans to life insurance policyholders 455.3 442.6
Short-term investments 220.8 165.2
--------- ---------
31,437.5 29,385.2
Finance receivables 4,710.9 8,697.9
Less unearned fees ($326.2 in 1997
and $437.6 in 1996) and allowance for
losses 424.0 794.1
--------- ---------
4,286.9 7,903.8
Cash and cash equivalents 95.9 471.8
Trade and other accounts receivable 2,210.0 1,933.9
Property and equipment, less accumulated
depreciation of $1,425.3 in 1997 and
$1,309.9 in 1996:
Land, buildings and equipment 408.5 436.8
Equipment held for lease 3,115.0 3,118.5
Deferred policy acquisition costs 2,110.4 2,138.2
Separate account assets 5,236.1 3,527.9
Goodwill, less accumulated amortization of
$151.8 in 1997 and $143.9 in 1996 364.8 389.3
Assets held for sale 171.5 86.5
Other assets 532.1 483.0
--------- ---------
$49,968.7 $49,874.9
========= =========
(Amounts in millions)
</TABLE>
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<TABLE>
TRANSAMERICA CORPORATION AND SUBSIDIARIES
-----------------
CONSOLIDATED BALANCE SHEET (Continued)
Liabilities and Stockholders' Equity
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
Life insurance policy liabilities $29,680.3 $28,542.8
Notes and loans payable, principally of
finance subsidiaries, of which $1,016.8
in 1997 and $1,241.3 in 1996 matures
within one year 6,413.2 10,328.3
Accounts payable and other liabilities 2,038.7 1,899.0
Income taxes 1,496.2 911.3
Separate account liabilities 5,236.1 3,527.9
Minority interest in preferred securities
of affiliates 525.0 525.0
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 in
1996, at liquidation preference of
$100,000 per share 225.0
Outstanding--Series D, 180,091 shares
in 1996, at liquidation preference of
$500 per share, cumulative dividend
rate of 8.5% 90.0
Common Stock ($1 par value):
Authorized--150,000,000 shares
Outstanding--62,736,288 shares in 1997
and 65,968,708 shares in 1996,
after deducting 17,002,174 shares
and 13,769,754 shares in treasury 62.7 66.0
Additional paid-in capital 83.0
Retained earnings 3,187.9 2,920.2
Net unrealized gain from investments
marked to fair value 1,363.0 784.4
Foreign currency translation adjustments (34.4) (28.0)
--------- ---------
4,579.2 4,140.6
--------- ---------
$49,968.7 $49,874.9
========= =========
(Amounts in millions except for share data)
</TABLE>
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<TABLE>
TRANSAMERICA CORPORATION AND SUBSIDIARIES
----------------------
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES
Investment income $ 1,640.2 $ 1,566.9 $ 554.9 $ 530.3
Life insurance premiums and related
income 1,541.1 1,350.8 573.7 508.2
Finance charges and other fees 633.5 903.1 142.1 296.5
Leasing revenues 565.3 496.7 194.8 168.5
Real estate and tax service revenues 219.8 191.0 73.2 71.5
Gain (loss) on investment transactions 3.0 28.0 (11.5) (1.6)
Gain on sale of consumer lending
branch operation 469.0
Other 81.6 64.5 33.7 18.9
--------- --------- --------- --------
5,153.5 4,601.0 1,560.9 1,592.3
EXPENSES
Life insurance benefits 2,291.7 2,076.1 815.4 751.1
Life insurance underwriting, acquisition
and other expenses 544.7 473.3 184.4 157.0
Interest and debt expense 418.3 514.4 110.3 170.4
Leasing operating and maintenance costs 340.7 275.5 113.1 92.5
Provision for losses on receivables and
assets held for sale 48.0 249.6 3.0 148.1
Other, including administrative and
general expenses 601.1 610.4 175.5 207.4
--------- --------- --------- --------
4,244.5 4,199.3 1,401.7 1,526.5
--------- --------- --------- --------
909.0 401.7 159.2 65.8
Income taxes 290.1 66.6 9.2 (48.1)
--------- --------- --------- --------
Net Income $ 618.9 $ 335.1 $ 150.0 $ 113.9
========= ========= ========= ========
Earnings per share of common stock:
Primary:
Income before gain on investment
transactions $ 9.12 $ 4.55 $ 2.42 $ 1.68
Gain (loss) on investment transactions 0.02 0.27 (0.12) (0.01)
--------- --------- -------- ---------
Net Income $ 9.14 $ 4.82 $ 2.30 $ 1.67
========= ========= ======== =========
Fully diluted:
Income before gain on investment
transactions $ 9.10 $ 4.44 $ 2.42 $ 1.65
Gain (loss) on investment transactions 0.02 0.27 (0.12) (0.01)
--------- --------- -------- ---------
Net Income $ 9.12 $ 4.71 $ 2.30 $ 1.64
========= ========= ======== =========
Dividends per share of common stock $ 1.50 $ 1.50 $ 0.50 $ 0.50
========= ========= ======== =========
Ratio of earnings to fixed charges 2.90 1.74
==== ====
(Amounts in millions except for per share data)
</TABLE>
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<TABLE>
TRANSAMERICA CORPORATION AND SUBSIDIARIES
-----------------
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
<CAPTION>
Nine months ended
September 30,
1997 1996
<S> <C> <C>
Balance at beginning of year $2,920.2 $2,866.0
Net income 618.9 335.1
Dividends on common stock (96.3) (99.2)
Dividends on preferred stock (2.6) (12.8)
Treasury stock purchased (252.3) (252.9)
-------- --------
Balance at end of period $3,187.9 $2,836.2
======== ========
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine months ended
September 30,
1997 1996
OPERATING ACTIVITIES
Net income $ 618.9 $ 335.1
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sale of consumer lending
branch operation (275.0)
Increase in life insurance policy
liabilities, excluding policyholder
balances on interest-sensitive policies 388.0 764.9
Amortization of policy acquisition costs 180.9 180.3
Policy acquisition costs deferred (335.2) (278.5)
Depreciation and amortization 256.8 237.2
Other 91.1 12.7
--------- ---------
Net cash provided by operations 925.5 1,251.7
INVESTING ACTIVITIES
Finance receivables originated (16,681.0) (13,769.9)
Finance receivables collected and sold 16,819.8 13,541.3
Purchase of investments (8,734.7) (6,218.9)
Sales and maturities of investments 7,595.2 4,431.7
Proceeds from sale of branch based consumer
lending operation 3,860.0
Other (294.7) (163.4)
--------- ---------
Net cash provided (used) by investing activities 2,564.6 (2,179.2)
FINANCING ACTIVITIES
Proceeds from debt financing 3,310.7 4,588.7
Payment of notes and loans (7,169.3) (4,397.2)
Receipts from interest-sensitive policies
credited to policyholder account balances 5,842.5 5,183.6
Return of policyholder balances on
interest-sensitive policies (5,097.3) (4,049.9)
Treasury stock purchases (424.0) (290.9)
Redemption of preferred stock (318.9)
Other common stock transactions 89.2 34.7
Dividends (98.9) (112.0)
-------- -------
Net cash provided (used) by financing activities (3,866.0) 957.0
-------- -------
Increase (decrease) in cash and cash equivalents (375.9) 29.5
Cash and cash equivalents at beginning of year 471.8 67.6
------ ----
Cash and cash equivalents at end of period $ 95.9 $ 97.1
======= =======
(Amounts in millions)
</TABLE>
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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 nine months of 1997 increased
$283.8 million (85%), compared to the first nine months of 1996. Net income for
the first nine months of 1997 included net after tax gains from investment
transactions aggregating $1.6 million compared to $18.2 million in the first
nine months of 1996. In the first nine months of 1997 income before investment
transactions increased $300.4 million (95%) over the first nine months of 1996.
The 1997 period included a $275 million after tax gain from the sale of the
branch based consumer lending business and a $44.1 million benefit from the
resolution of prior years' tax matters. Income before investment transactions
for the 1996 period included $63.8 million in benefits from the resolution of
prior years' tax matters and a $9.1 million after tax benefit from the
elimination of contingencies associated with the 1995 sale of assets by the
commercial lending operation and contingencies associated with previously
discontinued businesses. Offsetting the 1996 benefits was a $72 million after
tax charge at the consumer lending operation primarily for increased loss
reserves. Excluding these items, income before investment transactions for the
first nine months of 1997 decreased $17.8 million (6%) due primarily to
decreases in consumer lending, leasing and life insurance operating results and
higher unallocated interest and other expenses. Partially offsetting these
decreases were increased real estate and commercial lending operating results.
Transamerica's net income for the third quarter of 1997 increased $36.1
million (32%), compared to the third quarter of 1996. Net income for the third
quarter of 1997 included net after tax losses from investment transactions
aggregating $7.7 million compared to a loss of $1 million in the third quarter
of 1996. In the third quarter of 1997 income before investment transactions
increased $42.8 million (37%) over the third quarter of 1996. Income before
investment transactions in the third quarter of 1997 included the $44.1 million
tax benefit discussed in the preceding paragraph. Income before investment
transactions in the third quarter of 1996 included all the 1996 items discussed
above. Excluding the third quarter 1997 and 1996 items discussed above, income
before investment transactions decreased $400,000 (less than 1%) due primarily
to decreases in consumer lending and leasing operating results partially offset
by increases in commercial lending, real estate and life insurance operating
results and lower unallocated interest and other expenses.
The pretax gain (loss) on investment transactions, included in
consolidated revenues, comprises (amounts in millions):
<TABLE>
Nine months ended Three months ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net gain (loss) on sale
of investments $(9.6) $34.0 $(10.1) $ 6.5
Adjustment for impairment in value (2.0) (5.5) (4.4)
Adjustment to amortization of
deferred policy acquisition
costs for realized gains/losses
on investment transactions 14.6 (0.5) (1.4) (3.7)
----- ----- ------ -----
$ 3.0 $28.0 $(11.5) $(1.6)
===== ===== ====== =====
</TABLE>
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The amortization of deferred policy acquisition costs is adjusted for
gains and losses 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 reflect 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.
<TABLE>
REVENUES AND INCOME BY LINE OF BUSINESS
<CAPTION>
Three month ended
Nine months ended September 30 September 30
Revenues Income (loss) Income (loss)
1997 1996 1997 1996 1997 1996
(Amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Life insurance $3,161.8 $2,901.8 $227.1 $236.4 $ 84.3 $ 84.1
Gain (loss) on investment
transactions (17.6) 21.7 (11.5) 14.1 (13.7) (2.4)
-------- -------- ------ ------ ------ ------
Total life insurance 3,144.2 2,923.5 215.6 250.5 70.6 81.7
Commercial lending 361.4 319.7 63.1 54.5 21.2 21.8
Consumer lending 749.8 579.2 276.5 (52.6) 1.5 (65.7)
Leasing 619.0 548.6 45.6 59.7 17.3 22.0
Amortization of goodwill (9.9) (9.8) (3.5) (3.3)
-------- -------- ------ ------ ------ ------
Total finance 1,730.2 1,447.5 375.3 51.8 36.5 (25.2)
Real estate services 283.9 238.9 54.0 36.5 17.3 15.2
Gain on investment
transactions 20.5 20.2 13.1 13.2 6.0 1.4
Amortization of goodwill (0.1) (0.1)
-------- -------- ------ ------ ------ ------
Total real estate services 304.4 259.1 67.0 49.6 23.3 16.6
Unallocated interest and
other expenses 25.4 19.3 (39.0) (7.7) 19.6 40.8
Consolidation eliminations (50.7) (48.4) (9.1)
-------- -------- ------ ------ ------ ------
Total revenues and net income $5,153.5 $4,601.0 $618.9 $335.1 $150.0 $113.9
======== ======== ====== ====== ====== ======
</TABLE>
Life Insurance
Net income from our life insurance operations for the nine and three
month periods ended September 30, 1997 decreased by $34.9 million (14%) and
$11.1 million (14%) compared to the corresponding periods of 1996. Excluding
investment transactions, income from insurance operations decreased $9.3 million
(4%) during the nine month period of 1997 and increased $200,000 (less than 1%)
in the third quarter as compared to the same periods of 1996. The results of the
insurance operations for the first nine months of 1997 were affected by a $20.1
million after tax charge for a legal settlement recorded in the first quarter.
The life insurance line experienced a decrease in income before
investment transactions for both the nine and three month periods ended
September 30, 1997 compared to the same periods of 1996. The decrease for the
nine month period was primarily the result of the settlement provision described
in the preceding paragraph in addition to unfavorable claims activity. The
decrease in the third quarter resulted from a combination of increased operating
expenses and unfavorable claims.
The annuities line income before investment transactions increased for
both the nine and three month periods ended September 30, 1997 compared to the
same periods of 1996. These increases were primarily attributable to increases
in fee income related to a higher variable annuity asset base combined with a
reduction in operating costs in 1997. Operating expenses during 1996 were
adversely affected by relocation costs associated with moving portions of the
operations to Charlotte, North Carolina and Kansas City, Missouri.
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The asset management group experienced slight increases in income
before investment transactions for both the nine and three month periods ended
September 30, 1997 compared to the corresponding periods of 1996. The primary
factors contributing to these increases were favorable interest rate spreads and
increased fee income resulting from overall growth in the asset management line
business. The asset management group's results were negatively impacted by an
earlier decision to reduce the scale of the structured settlements business.
The reinsurance line experienced a slight increase in income before
investment transactions for the nine month period and a decrease for the three
month period ended September 30, 1997 compared to the 1996 periods. The increase
for the nine month period reflected growth in policy revenue partially offset by
increased claim costs. The decline in third quarter results was primarily due to
increased claim costs.
The Canadian line's income before investment transactions increased in
both the first nine months and third quarter of 1997 over the comparable periods
of 1996. The factors contributing to this improvement were improved persistency,
favorable claims experience and higher management fees from the positive growth
in the segregated funds business.
In the corporate line, income before investment transactions increased
slightly during the first nine months and third quarter of 1997 compared to the
same periods of 1996. These increases were attributable primarily to increases
in after tax investment income.
For the nine month period ended September 30, 1997 after tax net losses
on investment transactions were $11.5 million compared to after tax net gains of
$14.1 million for the first nine months of 1996. After tax net losses on
investment transactions increased by $11.3 million for the three month period
ended September 30, 1997, compared to the same three month period of 1996.
Included in these amounts are after tax net losses of $19.6 million and $12.8
million in gains realized on sales of investments during the nine months and
three months periods ended September 30, 1997, compared to after tax net gains
of $18 million and $2.8 million realized during the comparable periods of 1996.
The $18 million after tax gain in 1996 included an after tax gain of $9.1
million resulting from a transaction with a special purpose subsidiary of
Transamerica Corporation in which certain below investment grade bonds were
exchanged for collateralized bond obligations with higher ratings issued by the
subsidiary. This transaction had no effect on Transamerica's consolidated
financial statements. Investment transactions for the nine month period ended
September 30, 1997 reflect downward adjustments of $1.3 million after tax,
primarily for impairment in the value of the mortgage loan portfolio compared to
downward adjustments recorded in the first nine months of 1996 of $3.6 million
after tax for the impairment in the value of certain below investment grade
fixed maturity investments.
Total life companies net investment income increased $69.6 million (5%)
and $24.8 million (5%) for the nine month and three month periods of 1997
compared to the same periods of 1996. These increases were primarily due to a
growing invested asset base.
Total life companies policy revenue increased $190.3 million (14%) and
$65.4 million (13%) for the nine month and three month periods of 1997 compared
to the same periods of 1996. These increases were due primarily to growth in the
modified coinsurance business in the reinsurance line.
Total life companies insurance benefit costs and expenses increased
$287 million (11%) and $91.8 million (10%) for the nine month and three month
periods ended September 30, 1997 compared to the same periods in 1996. The
increases were primarily due to: 1) increase in interest credited on
interest-sensitive policies, 2) unfavorable claims activity and, 3) the
provision for the legal settlement discussed above.
Cash provided by life companies operations for the nine and three month
periods ended September 30, 1997 decreased $285.1 million (43%) and $106.5
million (53%) from the same periods of 1996. These decreases were primarily due
to the timing of the settlement of certain receivables and payables, including
reinsurance receivables and payables. The life companies continue to maintain a
sufficiently liquid investment portfolio to cover operating requirements. The
remainder of our funds are invested in long term securities.
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Commercial Lending
Commercial lending net income for the first nine months and third
quarter of 1997 was $55.1 million and $18.5 million compared to $46.3 million
and $19.1 million for the comparable periods of 1996. Commercial lending income,
before the amortization of goodwill, for the first nine months and third quarter
of 1997 increased $8.6 million (16%) and decreased $600,000 (3%) from 1996's
first nine months and third quarter. The first nine months increase resulted
primarily from (1) the inclusion in the first quarter 1997 of a $3.2 million tax
benefit from the satisfactory resolution of prior years' tax matters, (2) the
inclusion in the first quarter of 1996 of the effect of after tax loss
provisions of $2.5 million on a contested account and for settlement of a legal
matter and (3) higher average net receivables outstanding in 1997. These factors
more than offset the inclusion in the third quarter of 1996 of a $4.5 million
benefit from the resolution of previously disputed issues relating to the 1995
sale of certain operating assets. The decrease in the third quarter resulted
primarily from the effect of the $4.5 million benefit described above which more
than offset the positive impact in the third quarter of 1997 of higher average
net receivables outstanding.
Revenues in the first nine months and third quarter of 1997 increased
$41.7 million (13%) and $14.4 million (13%) over the corresponding 1996 periods.
Higher average net receivables outstanding more than offset a decline in yield
due to increased competition.
Interest expense increased $20.5 million (19%) and $7.9 million (22%)
in the first nine months and third quarter of 1997 principally due to a higher
average debt level needed to support receivables growth. Operating expenses for
the first nine months and third quarter of 1997 increased $7.3 million (6%) and
$3.7 million (9%) primarily as a result of higher levels of business volume and
outstanding receivables. The provision for losses on receivables for the first
nine months and third quarter of 1997 increased $2.1 million (25%) and $2.4
million (891%) from the corresponding 1996 periods. The 1996 first quarter
included a $2.9 million ($1.7 million after tax) reserve established on a major
impaired account in the insurance premium finance portfolio. The third quarter
increase in the loss provision was primarily attributable to the third quarter
1996 reversal of reserves no longer required due to the collection of previously
reserved receivables in the liquidating portfolio. Credit losses, net of
recoveries, on an annualized basis as a percentage of average commercial finance
receivables outstanding, net of unearned finance charges, were 0.14% for the
first nine months and 0.12% for the third quarter of 1997 compared to 0.07% and
0.03% for the comparable periods in 1996.
Net commercial finance receivables outstanding were $3.9 billion at
September 30, 1997 an increase of $213.8 million (6%) from December 31,1996. In
1997, the distribution finance operation purchased for cash a portfolio of floor
plan finance receivables with a total net outstanding balance of approximately
$115 million and securitized and sold approximately $227 million of a pool of
floor plan finance receivables. The insurance premium finance operation reduced
the level of pooled securitized receivables by $75 million ($400 million at
September 30). Management has established an allowance for losses equal to 2.23%
of net commercial finance receivables outstanding as of September 30, 1997
compared to 2.22% at December 31, 1996.
Delinquent receivables are defined as instalments for inventory finance
and asset based lending receivables more than 60 days past due and the
outstanding loan balance for all other receivables over 60 days past due.
Delinquent receivables were $19.4 million (0.48% of receivables outstanding) at
September 30, 1997 compared to $17.3 million (0.46% of receivables outstanding)
at December 31, 1996.
Nonearning receivables are defined as balances from borrowers that are
more than 90 days delinquent or sooner if it appears doubtful they will be fully
collectible. Accrual of finance charges is suspended on nonearning receivables
until such time as past due amounts are collected. Nonearning receivables were
$30.8 million (0.76% of receivables outstanding) at September 30, 1997 compared
to $21.4 million (0.56% of receivables outstanding) at December 31, 1996.
Consumer Lending
Consumer finance net income for the first nine months and third quarter
of 1997 was $276.1 million and $1.1 million. Operating income (excluding
goodwill amortization) for the same periods was $276.5 million and $1.5 million.
Third quarter earnings comprise the results of the continuing businesses and the
liquidating operations. The branch based consumer lending operation was sold in
the second quarter of 1997. Prior to completing the sale of the branch based
operation, the consumer finance operation reported breakeven results for the
1997 periods. The sale resulted in an after tax gain of $275 million after
taking into account writedowns of intangibles and other items. In the first nine
months and third quarter of 1996, the consumer lending operation had net losses
of $52.6 million and $65.8 million.
<PAGE>
Page 11
Revenues increased $170.6 million (29%) for the first nine months of
1997 over the comparable period of 1996. This increase was due primarily to a
$469 million pre-tax gain on the sale of the branch-based lending business in
the second quarter of 1997 offset in part by lower finance charges due to lower
average receivables outstanding which resulted primarily from the sale of the
branch based consumer lending operation and sale of various loan portfolios
during the first six months of 1997. For the third quarter of 1997 revenues
decreased $157.6 million (84%) from the third quarter of 1996. This decrease was
due primarily to lower average receivables outstanding which resulted primarily
from the sales of receivables during the first six months of 1997, offset
partially by a $5 million pretax settlement of a claim on a prior year portfolio
acquisition and by an $8.5 million pretax gain on the sale (with servicing
rights retained) of certain continuing business loan portfolios in the third
quarter of 1997.
Interest expense for the first nine months and third quarter of 1997
decreased $116.9 million (52%) and $67.7 million (91%) from the comparable 1996
periods. Other operating expenses for the first nine months and third quarter of
1997 decreased $69.5 million (35%) and $55.7 million (75%) compared to the 1996
periods. The provision for losses on receivables for the first nine months and
third quarter of 1997 decreased $203.7 million (84%) and $147.6 million (100%)
compared to the same periods a year ago. All declines were due primarily to the
sale on June 23, 1997 of the branch-based lending business.
Transamerica has commenced building a new centralized real estate
secured lending operation. As part of this plan, at September 30, 1997, there
were $71 million of net consumer finance receivables relating to continuing
operations. This was a reduction of $109.4 million from June 30, 1997 reflecting
the sale with servicing rights retained of $169.5 million of receivables in the
third quarter.
Delinquent continuing operations finance receivables, which are defined
as receivables contractually past due 60 days or more, were $6.7 million at
September 30, 1997 (9.13% of finance receivables outstanding). This was an
increase over the $2.9 million (1.57% of finance receivables outstanding) at
June 30, 1997. The increase reflects a seasoning of a relatively new portfolio.
For continuing business accounts, accrual of interest and other finance
charges is suspended on accounts that become contractually past due more than 90
days. At September 30, 1997 such nonearning receivables amounted to $4.7
million. Payments received on accounts while in non accrual status are applied
to principal and interest income according to the terms of the loan.
Management has established an allowance for losses of $5.7 million
equal to 8.05% of net consumer finance receivables outstanding at September 30,
1997 on continuing businesses. At June 30, 1997 the allowance was $5.2 million
or 2.90% of net consumer finance receivables. The increase in the percent of net
consumer finance receivables is due primarily to lower outstandings as a result
of the sale of a portion of the continuing business portfolio during the
quarter.
Assets held for sale at September 30, 1997, totaled $171.5 million
reflecting the net carrying value of $208.3 million of contractual finance
receivables of which $139.9 million is 60 days or more past due, $30.4 million
of foreclosures in process and $15.9 million of repossessed assets. Assets held
for sale at June 30, 1997 were $189.5 million. Early in the fourth quarter,
finance receivables and foreclosures in process of $158.7 million were sold.
Gross proceeds were $117.8 million subject to closing adjustments. Management
intends to continue its efforts to dispose of this portfolio.
Factors such as economic conditions, competition, and the state of the
real estate market all affect trends in receivable levels, credit losses,
delinquencies, accounts in foreclosure and repossessed assets.
Leasing
Leasing net income for the first nine months and third quarter of 1997
was $44 million and $16.8 million compared to $58.1 million and $21.5 million
for the first nine months and third quarter of 1996. Leasing income, before the
amortization of goodwill, was $45.6 million and $17.3 million in the first nine
months and third quarter of 1997 compared to $59.7 million and $22 million in
the corresponding periods of 1996.
Leasing income, before the amortization of goodwill, for the first nine
months and third quarter of 1997 decreased $14.1 million (24%) and $4.7 million
(21%) from the first nine months and third quarter of 1996. Lower earnings for
both the first nine months and third quarter of 1997 resulted from lower per
diem rates and lower standard container utilization caused by an industry over
capacity of equipment, and from lower gains from sales of used standard
containers. Partially offsetting these declines were improved earnings in the
rail trailer, refrigerated, tank and domestic containers and European trailer
lines, mainly associated with increased on-hire units.
<PAGE>
Page 12
Revenue for the first nine months and third quarter of 1997 increased
$70.4 million (13%) and $25.6 million (14%) versus the first nine months and
third quarter of 1996. The revenue increases were due to a larger on-hire fleet
of standard, refrigerated and tank containers and chassis primarily associated
with the October 1996 acquisition of Trans Ocean Ltd. which increased the fleet
size approximately 25%. Revenue also increased due to a larger portfolio of
finance leases and more on-hire European trailers. Partially offsetting the
increase were lower revenues from decreased rental rates and utilization for
standard containers and refrigerated containers primarily due to an over
capacity of equipment. The rail trailer operation also reported lower revenue
due to a smaller fleet size.
Expenses for the first nine months and third quarter of 1997 increased
$85 million (18%) and $30.6 million (20%) over the corresponding 1996 periods,
primarily due to higher ownership and operating costs associated with larger
fleets of standard and refrigerated containers, chassis and European trailers.
The combined utilization rate for standard containers, refrigerated
containers, domestic containers, tank containers and chassis averaged 78% and
79% for the first nine months and third quarter of 1997 compared to 81% for both
the first nine months and third quarter of 1996. Rail trailer utilization was
83% and 84% for the first nine months and third quarter of 1997 compared to 80%
and 81% for the first nine months and third quarter of 1996. European trailer
utilization was 91% and 90% for the first nine months and third quarter of 1997
compared to 92% for both the first nine months and third quarter of 1996.
Real Estate Services
This segment includes Transamerica's real estate information businesses
as well as certain real estate holdings and other investments.
Net income for the first nine months of 1997 increased $17.4 million
(35%) over the first nine months of 1996. Net income included net after tax
gains from investment transactions of $13.1 million and $13.2 million in the
first nine months of 1997 and 1996. Income before investment transactions in the
first nine months of 1997 increased $17.5 million (48%) from the first nine
months of 1996 primarily due to a $15.5 million after tax gain realized on the
sale of a real estate property in the second quarter of 1997 and increased
earnings at the real estate information companies. Income before investment
transactions in the first nine months and third quarter of 1996 included gains
totaling $5.3 million after tax from the sale of three real estate properties.
Net income for the third quarter of 1997 increased $6.7 million (40%)
over the third quarter of 1996. Net income included net after tax gains from
investment transactions of $6 million and $1.4 million in the third quarters of
1997 and 1996. Income before investment transactions in the third quarter of
1997 increased $2.1 million (14%) from the third quarter of 1996, which included
the $5.3 million of gains discussed above, primarily due to increased earnings
at the real estate information companies.
Revenues for the first nine months of 1997 increased $45.3 million
(17%) over the first nine months of 1996 as a result of increased investment
income and the gain noted above. Revenues for the third quarter of 1997
increased $12.3 million (13%) over the third quarter of 1996 primarily as a
result of increased business at the real estate information companies.
Unallocated Interest and Expenses
Unallocated interest and other expenses, after related income taxes,
for the first nine months and third quarter of 1997 included a $44.1 million
benefit from the satisfactory resolution of prior year tax issues. In the first
nine months and third quarter of 1996 unallocated investment transactions,
interest and expenses, after related income taxes, included a $63.8 million
benefit from the satisfactory resolution of prior year tax issues and a $4.6
million benefit from the resolution of issues associated with previously
discontinued operations. Excluding these items, unallocated interest and
expenses increased $7 million. The increase was primarily due to costs
associated with the Capital Trust Pass-Through Securities issued in November,
1996 and the vesting in the first quarter of 1997 of certain performance stock
options issued under the 1995 Performance Stock Option Plan.
Excluding the items discussed above, unallocated interest and other
expenses, after related income taxes, for the third quarter of 1997 decreased
$3.1 million over the same quarter of 1996. The decrease was primarily due to
decreased interest expense associated with lower 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 subsidiaries
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.
<PAGE>
Page 13
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 or liquid assets to repay working capital loans from the
Corporation.
On May 21, 1997, Transamerica announced that its board of directors had
authorized additional purchases of up to 6 million shares of the its common
stock. On June 27, 1997 Transamerica announced the purchase of 3 million shares
of its common stock under this authorization. The shares were purchased from two
investment banks for approximately $273 million at an average price of $91.11
per share, subject to market price adjustment provisions. To complete the
transaction, the investment banks borrowed Transamerica common shares and will
be purchasing replacement shares in the open market. During the first nine
months of 1997 Transamerica purchased 4,082,500 shares for $378.3 million
(including the 3 million share purchase noted above).
Investment Portfolio
Transamerica, principally through its life insurance subsidiaries,
maintains an investment portfolio aggregating $31.4 billion at September 30,
1997, of which $28.3 billion was invested in fixed maturities. At September 30,
1997, 94.9% of the fixed maturities was rated as "investment grade" with an
additional 3.3% in the BB category or its equivalent. The amortized cost of
fixed maturities was $26.6 billion resulting in a net unrealized gain, before
the effect of income taxes and adjustments to deferred acquisition costs and
policy liabilities, of $1.7 billion at September 30, 1997. Fixed maturity
investments are generally held for long-term investment and used primarily to
support life insurance policy liabilities. Adjustment for impairment in value
has been made to reduce the amortized cost of certain fixed maturity investments
by $56 million at September 30, 1997 and $62.9 million at December 31, 1996.
In addition to the investments in fixed maturities, $757.5 million (2%
of the investment portfolio), net of allowance for losses of $43.5 million, was
invested in mortgage loans and real estate including $687.5 million in
commercial mortgage loans, $76.9 million in real estate investments, $4.4
million in foreclosed real estate and $32.2 million in residential mortgage
loans. Problem loans, defined as restructured loans yielding less than 8% and
delinquent loans, totaled $4.7 million at September 30, 1997 and $8.1 million at
December 31, 1996. Allowances for possible losses of $43.5 million at September
30, 1997 and $42.8 million at December 31, 1996 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, and options to
enter into interest rate swap agreements (swaptions).
Derivative financial instruments with a notional amount of $9.4 billion
at September 30, 1997 and $9.9 billion at December 31, 1996 were outstanding and
designated as hedges of Transamerica's investment portfolio. In addition,
derivative financial instruments with a notional amount of $4.2 billion at
September 30, 1997 and $3.5 billion at December 31, 1996 were outstanding and
designated as hedges of Transamerica's liabilities.
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 September 30, 1997, 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 September 30, 1997
and December 31, 1996 was a net benefit of $82.6 million and $73.7 million
comprising agreements with aggregate gross benefits of $132.4 million and $91.2
million and agreements with aggregate gross obligations of $49.8 million and
$17.5 million.
When an asset or liability which is hedged by a derivative contract is
sold or otherwise disposed of, the derivative contract is either reassigned to
hedge another asset or liability or closed out, and any gain or loss recognized.
<PAGE>
Page 14
Pro forma Earnings Per Share
In February 1997 the Financial Accounting Standards Board issued
Statement No. 128 - Earnings Per Share. This statement is effective for years
ending after December 15, 1997 and supersedes the earnings per share calculation
methodology and disclosure requirements of APB Opinion No. 15. The earnings per
share amounts below reflect on a pro forma basis Transamerica's earnings per
share in accordance with the new standard.
<TABLE>
Nine months ended Three months ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Earnings per share - basic:
Income before gain on
investment transactions $9.40 $4.55 $2.50 $1.68
Gain (loss) on investment transactions 0.03 0.27 (0.12) (0.01)
----- ----- ----- -----
Net income $9.43 $4.82 $2.38 $1.67
===== ===== ===== =====
Earnings per share - diluted:
Income before gain on
investment transactions $9.12 $4.44 $2.42 $1.65
Gain (loss) on investment transactions 0.02 0.27 (0.12) (0.01)
---- ----- ----- -----
Net income $9.14 $4.71 $2.30 $1.64
===== ===== ===== =====
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Employment Agreement by and between Transamerica
Corporation and Frank C. Herringer dated as of November
4, 1997.
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.
On July 8th, Transamerica reported that it had sold
substantially all of its real estate secured lending operations to a subsidiary
of Household International.
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: November 13, 1997
EXHIBIT 10.1
Page 1
EMPLOYMENT AGREEMENT
AGREEMENT by and between Transamerica Corporation, a Delaware corporation (the
"Company") and Frank C. Herringer (the "Executive"), dated as of the 4th day of
November, 1997.
1. Employment Period. The Company hereby agrees to continue the Executive in its
employ, and the Executive hereby agrees to remain in the employ of the Company
subject to the terms and conditions of this Agreement, for the period commencing
on the date hereof and ending on December 31, 2001 (the "Employment Period").
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, the Executive shall be Chief
Executive Officer of the Company and Chairman of the Company's Board of
Directors and shall have such duties, responsibilities and authority as shall be
consistent therewith. The Executive's services shall be performed in San
Francisco, California, subject to reasonable travel requirements.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave or other approved leaves of absence in accordance with
established policies of the Company to which the Executive is entitled, the
Executive agrees to devote full attention and time during normal business hours
to the business and affairs of the Company and to use the Executive's reasonable
best efforts to perform faithfully and efficiently such responsibilities. During
the Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as such activities do
not significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary") of no less than
$975,000. The Annual Base Salary shall be paid in equal bi-monthly installments.
During the Employment Period, the Annual Base Salary shall be reviewed at least
every 12 months. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall have, for each fiscal year ending during the Employment Period,
a target annual bonus pursuant to the Company's 1994 Value Added Incentive Plan
or any successor thereto of no less than 100% of the Executive's Annual Base
Salary for such year (the "Target Bonus"). Each such Annual Bonus shall be paid
in cash or restricted stock as determined pursuant to the Company's 1994 Value
Added Incentive Plan and shall be paid no later than the end of the third month
of the fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of the cash
portion of such Annual Bonus. Any deferral shall be subject to the terms of the
Transamerica Corporation Deferred Compensation Plan.
(iii) Cash Long-Term Incentives. The Executive shall participate
in the Company's 1998 Cash Long-Term Incentive Plan on the same basis as other
senior executives of the Company and shall have a target award thereunder of
$3.2 million (the "Target LTIP") for the period 1998-1999 based on the
achievement of cumulative value added targets for the period 7/1/97 through
12/31/99 (the "Performance Period"). Upon a "Change in Control" of the Company
as defined in the Agreement between the Company and the Executive dated July 11,
1997 (the "Existing Agreement"), the Executive shall receive a lump sum payment
equal to the greater of (x) $1,067,000, and (y) $3.2 million multiplied by a
fraction, the numerator of which is the number of days from July 1, 1997 until
the date of the Change in Control and the denominator of which is the number of
days in the Performance Period. Upon the Executive's death or Disability, the
Executive or his estate, as the case may be, shall receive a lump sum payment
equal to $3.2 million multiplied by a fraction, the numerator of which is the
number of days from July 1, 1997 until the Date of Termination and the
denominator of which is the number of days in the Performance Period.
<PAGE>
Page 2
(iv) Stock Options. On the later of the date of execution of
this Agreement or January 2, 1998, the Executive shall be granted, subject to
stockholder approval, a nonqualified stock option to acquire 645,000 shares of
the Company's common stock, pursuant to the Company's 1995 Performance Stock
Option Plan (the "1995 Plan") with an exercise price of $150 per share (the
"$150 Option"). The $150 Option shall vest and become immediately exercisable
when (i) the Company's common stock closes at or above $150 as quoted in the New
York Stock Exchange Composite Transactions Index published in The Wall Street
Journal for 10 out of any consecutive 30 trading days occurring not later than
five years of the date of grant, and (ii) the Company's total shareholder return
(as determined by the Company's Compensation Committee) during any Measurement
Period (as defined below) is at or above the median level of shareholder return
for the S&P 500 Financial Index, excluding banks and savings and loan
institutions (the criteria in (i) and (ii) above being the "Performance
Criteria"). Upon vesting, the $150 Option shall continue to be exercisable until
the tenth anniversary of the date of grant. "Measurement Period" is initially a
period from the date of grant of the $150 Option, or if longer, the date that is
one year prior to the date on which the condition in (i) above is satisfied. If
the condition in (ii) is not met initially, the condition shall be tested
periodically until the tenth anniversary of the date of grant of the $150
Option, as described in the Executive's award agreement.
Upon the Executive's death or Disability, the $150 Option shall
become vested and exercisable with respect to the following number of shares:
645,000 multiplied by a fraction (the "Proration Fraction"), the numerator of
which is the number of days from the date of grant until the Date of Termination
and the denominator of which is the number of days from the date of grant until
the fifth anniversary thereof, but only when and if the Performance Criteria are
met.
The Executive shall be granted that number of TLSARs, within the
meaning of the 1995 Plan, with respect to the $150 Option in the same manner as
for other participants under the 1995 Plan. Notwithstanding the foregoing, if a
TLSAR would make a Change in Control transaction ineligible for pooling of
interests accounting under APB No. 16 that but for the TLSAR would otherwise be
eligible for such accounting treatment, the Compensation Committee of the
Company shall have the ability to substitute the cash payable hereunder with
stock with a fair market value equal to the cash that would otherwise be payable
hereunder.
(v) Phantom Restricted Shares. On the later of January 2, 1998
or the first day of the Employment Period, the Executive shall be credited on
the books of the Company with 105,000 Phantom Restricted Shares. In addition, on
each date on which dividends or other distributions are paid on the Company's
common stock, the Executive shall be credited with an additional number of
Phantom Restricted Shares equal to: (A) the fair market value of the cash or
other property which would have been paid on such date as a dividend or other
distribution if the Executive's Phantom Restricted Shares (immediately prior
to such dividend or distribution) were actual shares of the Company's common
stock, divided by (B) the Fair Market Value on such date of a share of the
Company's common stock.
Except as otherwise provided in this Agreement, the Executive
shall have a right to payment of (that is, the Executive shall become vested in)
the Phantom Restricted Shares credited to him only on the last day of the
Employment Period, and only if his employment has not terminated prior to such
date. If prior to the last day of the Employment Period, the Executive's
employment is terminated due to Disability or death, the Executive shall become
vested in a pro rata portion of the Phantom Restricted Shares, based on the
elapsed portion of the Employment Period. If prior to the last day of the
Employment Period, the Executive's employment is voluntarily terminated by him
for Good Reason or involuntarily terminated by the Company other than for Cause,
the Executive shall become vested in a pro rata portion of the Phantom
Restricted Shares, based on the elapsed portion of the Employment Period,
provided that for this purpose only, the Executive shall be deemed to have
terminated employment 12 months after his actual termination date. If a Change
in Control occurs prior to the last day of the Employment Period and while the
Executive still is employed with the Company, the Executive shall become vested
in a pro rata portion of the Phantom Restricted Shares, based on the elapsed
portion of the Employment Period. If within 24 months after such Change in
Control, but before the last day of the Employment Period, the Executive's
employment is voluntarily terminated by him for Good Reason or involuntarily
terminated by the Company other than for Cause, the Executive shall become
vested in the remaining unvested Phantom Restricted Shares (notwithstanding the
third sentence of this paragraph). In all cases, any Phantom Restricted Shares
which are credited as a dividend or other distribution on vested Phantom
Restricted Shares also shall be immediately vested.
<PAGE>
Page 3
Pursuant to such procedures as the Committee may specify, the
Executive shall elect the form for payment of any vested Phantom Restricted
Shares and may designate one or more Beneficiaries to receive payment of any
vested, unpaid Shares which remain at the time of the Executive's death. Payment
of the Executive's vested Phantom Restricted Shares (if any) shall commence as
soon as administratively practicable after the Participant's termination of
employment. If, pursuant to the procedures specified by the Committee, the
Executive elected to receive ten annual installments, the amount of each
installment shall equal the value of the Phantom Restricted Shares credited to
him immediately prior to the payment, divided by the number of installments
remaining to be made. Each subsequent annual installment shall be paid to the
Executive as near as administratively practicable to each anniversary of the
first installment payment.
For purposes of this Agreement, "Phantom Restricted Share" means
an unfunded promise by the Company to make a cash payment to the Executive. Each
Phantom Restricted Share shall make the Executive only a general, unsecured
creditor of the Company. On any date, the value of each Phantom Restricted Share
shall equal the Fair Market Value of a share of the Company's common stock on
such date. For purposes of this Section 2(b)(v), "Fair Market Value" means the
last quoted per share selling price for the Company's common stock on the
relevant date, as quoted in the New York Stock Exchange Composite Transactions
Index published in The Wall Street Journal, or if there were no sales on such
date, the last quoted selling price on the nearest day after the relevant date.
All provisions of this Agreement relating to the Phantom
Restricted Shares shall be administered by the Management Development and
Compensation Committee of the Company's Board of Directors, or any successor
thereto (the "Committee"). The Committee shall have all powers and discretion
necessary or appropriate to administer the Phantom Restricted Shares, including,
but not by way of limitation, the discretionary powers to interpret and
determine the meaning of any provision of this Section 2(b)(v). The Phantom
Restricted Shares are intended to be exempt from liability under section 16(b)
of the Securities Exchange Act of 1934, as amended, pursuant to Rule 16b-3
promulgated thereunder. To the extent that any provision of this Section 2(b)(v)
or action by the Committee fails to comply with Rule 16b-3, it shall be deemed
null and void to the extent deemed advisable by the Committee, provided it does
not adversely affect the rights of the Executive hereunder.
In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, split-up, share
combination, or other change in the corporate structure of the Company affecting
the Company's common stock (each, an "Event"), the Committee shall adjust the
number and/or value of the Phantom Restricted Shares in such manner as the
Committee (in its sole discretion) shall determine to be appropriate to prevent
the dilution or diminution of such Phantom Restricted Shares. Any such
adjustment shall be made by the Committee as constituted immediately prior to
the applicable Event.
(vi) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be eligible to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies.
(vii) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, life insurance, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated companies.
(viii) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable business
expenses incurred by the Executive.
<PAGE>
Page 4
(ix) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services and an automobile of his choice and payment
of related expenses.
(x) Vacation. During the Employment Period, the Executive shall
be entitled to at least four weeks of paid vacation in each calendar year.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 10(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of
its affiliates (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the Board which
specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct, which in either case is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on
the part of the Executive, shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or without
reasonable belief that the Executive's action or omission was in the
best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good
faith and in the best interests of the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless
and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of a majority of the
entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive
and the Executive is given an opportunity, together with counsel, to be
heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph
(i) or (ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent
with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 2(a) of this Agreement, or any other action by
the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given
by the Executive or requiring the Executive to be based at a location
other than that set forth in Section 2(a);
<PAGE>
Page 5
(ii) any failure by the Company to comply with any of the
provisions of Section 2(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(iv) any failure by the Company to comply with and satisfy
Section 9(c) of this Agreement.
For purposes of this Section 3(c), any good faith
determination of "Good Reason" made by the Executive shall be
conclusive.
(d) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 10(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
4. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during
the Employment Period, the Company shall terminate the Executive's employment
other than for Cause, Death or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive the following
amounts:
A. a lump sum in cash equal to the sum of (1) the
Executive's Annual Base Salary through the Date of Termination
to the extent not theretofore paid, (2) the product of (x) the
Target Bonus and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together with
any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), and (3)
shall be hereinafter referred to as the "Accrued Obligations");
and
B. the amount (the "Severance Payment") equal to the
product of (1) three and (2) the sum of (x) the Executive's
Annual Base Salary and (y) the Target Bonus, which amount shall
be paid in 36 equal monthly installments, unless the Executive
has previously elected to receive a lump sum payment in which
case the Severance Payment shall be paid in a lump sum within 10
days of the Date of Termination and shall be discounted at the
applicable federal rate as defined in Section 7872(f)(2)(A) of
the Internal Revenue Code of 1986, as amended; and
(ii) all stock options, restricted stock and other stock-based
compensation shall become immediately exercisable or vested, as the case
may be, and will continue to be exercisable over the remaining term of
the respective option;
<PAGE>
Page 6
(iii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue benefits
to the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with the plans,
programs, practices and policies described in Section 2(b)(vii) of this
Agreement if the Executive's employment had not been terminated or, if
more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have
remained employed until three years after the Date of Termination and to
have retired on the last day of such period, thereby accumulating 36
additional months of age and 36 additional months of service credit; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
entitled to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such
other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of (i) Accrued Obligations, (ii) the timely
payment or provision of Other Benefits and (iii) such other payments as are
specifically provided for hereunder. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination.
(c) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of (i) Accrued Obligations, (ii) the timely payment or provision of Other
Benefits and (iii) such other payments as are specifically provided for
hereunder. Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
5. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any plan, program, policy
or practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with the Company or
any of its affiliated companies at or subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
6. Full Settlement. The Company's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others. In
no event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to pay
as incurred, to the full extent permitted by law, all legal fees and expenses
<PAGE>
Page 7
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company, the Executive or others of the validity
or enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"); provided that the Company shall have no such obligation if
it is determined by a court that the Company was not in breach of the Agreement
and that the Executive's claims were not made in good faith.
7. Coordination with Existing Agreement. Upon a Change in Control, the terms of
the Existing Agreement shall supersede this Agreement provided that the
provisions of Section 2(b)(iii), (iv), (v), Section 4(a)(ii), Section 4(b)(iii)
and Section 4(c)(iii) shall continue in full force and effect.
8. Confidential Information. The Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information, knowledge
or data relating to the Company or any of its affiliated companies, and their
respective businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company, the Executive
shall not, without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
9. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
10. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without reference to principles of conflict
of laws. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
90 Sea View Avenue
Piedmont, California 94611
If to the Company:
Transamerica Pyramid
600 Montgomery Street
San Francisco, California 94111
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
<PAGE>
Page 8
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 3(c)(i)-(iv) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
FRANK C. HERRINGER
/s/ Frank C. Herringer
TRANSAMERICA CORPORATION
By /s/ Peter V. Ueberroth
PETER V. UEBERROTH
CHAIRMAN,
MANAGEMENT DEVELOPMENT
AND COMPENSATION COMMITTEE
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
TRANSAMERICA CORPORATION
Nine months ended September 30,
1997 1996
(Dollar amounts in thousands,
except for share data)
Primary
Average shares outstanding 64,961 66,802
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 2,030 1,638*
------ ------
TOTAL 66,991 68,440
====== ======
Net income $618,916 $335,127
Preferred dividends (2,550) (12,814)
Preferred stock redemption cost (3,827)
-------- --------
Net income to common $612,539 $322,313
======== ========
Per share amount $9.14 $4.82
===== =====
Fully Diluted
Average shares outstanding 64,961 66,802
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 2,192 1,662
------ ------
TOTAL 67,153 68,464
====== ======
Net income $618,916 $335,127
Preferred dividends (2,550) (12,814)
Preferred stock redemption cost (3,827)
-------- --------
Net income to common $612,539 $322,313
======== ========
Per share amount $9.12 $4.71
===== =====
*Not included in per share calculation because effect is less than 3%.
EXHIBIT 12
TRANSAMERICA CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Nine months ended September 30,
1997 1996
(Dollar amounts in thousands)
Fixed charges:
Interest and debt expense $ 418,292 $ 514,375
One-third of rental expense 29,151 18,144
Dividends declared on preferred
securities issued by affiliates 29,975 12,843
---------- ----------
Total 477,418 $ 545,362
========== ==========
Earnings:
Net income $ 618,916 $ 335,127
Provision for income taxes 290,054 66,581
Fixed charges 477,418 545,362
---------- ----------
Total $1,386,388 $ 947,070
========== ==========
Ratio of earnings to fixed charges 2.90 1.74
==== ====
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 96
<SECURITIES> 1,666
<RECEIVABLES> 2,210
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,524
<DEPRECIATION> 1,425
<TOTAL-ASSETS> 49,969
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 4,516
<TOTAL-LIABILITY-AND-EQUITY> 49,969
<SALES> 0
<TOTAL-REVENUES> 5,153
<CGS> 0
<TOTAL-COSTS> 3,177
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 48
<INTEREST-EXPENSE> 418
<INCOME-PRETAX> 909
<INCOME-TAX> 290
<INCOME-CONTINUING> 619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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