<PAGE>
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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, 1998
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)
(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, 1998: 62,364,379 shares.
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TRANSAMERICA CORPORATION
FORM 10-Q
Part I. Financial Information
Item 1. Financial Statements.
The following unaudited consolidated financial statements of
Transamerica Corporation and Subsidiaries, for the periods ended September 30,
1998 and 1997, and the balance sheet as of December 31, 1997 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, 1997. 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.
* * * * * * *
Earnings per share is calculated by dividing income available to common
stockholders by the average number of common, and for diluted earnings per share
common stock equivalent, shares outstanding. Basic earnings per share is based
upon the weighted average number of common shares outstanding for the three
months ended September 30, 1998 and 1997 of 62,427,000 and 63,017,000 and for
the nine month periods then ended of 62,744,000 and 64,961,000. Diluted earnings
per share is based upon the weighted average number of common shares outstanding
during the period plus the effect of common stock options outstanding, using the
treasury stock method, of 64,625,000 and 65,202,000 for the three months ended
September 30, 1998 and 1997 and 65,163,000 and 66,991,000 for the nine month
periods ended September 30, 1998 and 1997. The computations for the nine month
period of 1997 are based on income after deduction of preferred dividends of
$2.6 million and the premium on redemption of preferred stock of $3.8 million.
Effective January 1, 1998, Transamerica adopted the provisions of
American Institute of Certified Public Accountants Statement of Position No.
98-1 which requires, among other things, that payroll costs incurred in the
development of computer software systems be capitalized. The effect of adoption
was to increase consolidated income for the nine months and three months ended
September 30, 1998 by $5.3 million ($0.08 diluted earnings per share) and $1.9
million ($0.03 diluted earnings per share).
The consolidated ratios of earnings to fixed charges were computed by
dividing income from continuing operations before fixed charges and income taxes
by the fixed charges. Fixed charges consist of interest and debt expense,
dividends declared on preferred securities issued by affiliates and one-third of
rent expense, which approximates the interest factor.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. Transamerica is required to adopt this
statement as of January 1, 2000. The effect on Transamerica's financial
statements of adopting this standard is uncertain at this time.
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<TABLE>
TRANSAMERICA CORPORATION AND SUBSIDIARIES
-----------------
CONSOLIDATED BALANCE SHEET
Assets
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
Investments, principally of life insurance subsidiaries:
Fixed maturities $ 29,763.8 $ 29,210.8
Equity securities 1,749.7 1,607.5
Mortgage loans and real estate 815.9 750.2
Loans to life insurance policyholders 454.4 451.0
Short-term investments 372.2 336.0
---------- ----------
33,156.0 32,355.5
Finance receivables 5,586.3 4,333.4
Less unearned fees ($389.5 in 1998
and $340.8 in 1997) and allowance for
losses 511.1 430.1
---------- ----------
5,075.2 3,903.3
Cash and cash equivalents 195.1 132.9
Trade and other accounts receivable 2,598.9 2,165.8
Net assets of discontinued operations 38.7 40.1
Property and equipment, less accumulated
depreciation of $1,573.4 in 1998 and
$1,465.9 in 1997:
Land, buildings and equipment 442.1 395.4
Equipment held for lease 3,031.5 2,996.5
Deferred policy acquisition costs 2,068.5 2,102.6
Separate account assets 7,685.9 5,494.7
Goodwill, less accumulated amortization of
$167.8 in 1998 and $156.2 in 1997 394.5 423.0
Assets held for sale 25.7 377.8
Other assets 731.8 785.3
---------- ----------
$ 55,443.9 $ 51,172.9
========== ==========
(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,
1998 1997
<S> <C> <C>
Life insurance policy liabilities $ 30,651.8 $ 30,141.9
Notes and loans payable, principally of
finance subsidiaries, of which $980.4
in 1998 and $998.6 in 1997 matures
within one year 6,995.9 6,235.3
Accounts payable and other liabilities 2,321.2 2,096.9
Income taxes 1,844.8 1,607.8
Separate account liabilities 7,685.9 5,494.7
Guaranteed preferred beneficial interest in
Company's junior subordinated debentures 715.0 715.0
Stockholders' equity:
Preferred Stock ($100 par value):
1,200,000 shares authorized; issuable
in series, cumulative;
none outstanding
Preference Stock (without par value)--
5,000,000 shares authorized; none
outstanding
Common Stock ($1 par value):
Authorized--300,000,000 shares
Outstanding-- 62,320,382 shares in 1998
and 62,904,108 shares in 1997,
after deducting 17,418,080 shares
and 16,834,354 shares in treasury 62.3 62.9
Retained earnings 3,521.1 3,330.8
Components of other cumulative
comprehensive income:
Net unrealized gain from investments
marked to fair value 1,695.0 1,533.6
Foreign currency translation adjustments (49.1) (46.0)
---------- ----------
5,229.3 4,881.3
---------- ----------
$ 55,443.9 $ 51,172.9
========== ==========
(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,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES
Investment income $ 1,688.6 $ 1,635.5 $ 559.3 $ 548.8
Life insurance premiums and related income 1,349.6 1,364.9 440.3 471.4
Finance charges and other fees 513.6 376.6 170.6 127.0
Leasing revenues 548.5 565.3 181.5 194.8
Real estate and tax service revenues 271.1 219.8 102.1 73.2
Gain (loss) on investment transactions 129.5 3.0 1.9 (11.5)
Other 91.1 62.3 34.0 19.6
-------- -------- ------- -------
4,592.0 4,227.4 1,489.7 1,423.3
EXPENSES
Life insurance benefits 2,126.1 2,115.5 697.7 713.0
Life insurance underwriting, acquisition
and other expenses 527.3 544.7 167.7 184.4
Interest and debt expense 312.4 310.1 102.5 97.8
Leasing operating and maintenance costs 337.8 340.7 116.0 113.1
Provision for losses on receivables 37.7 10.2 12.7 2.7
Other, including administrative and
general expenses 591.4 469.1 201.5 156.1
-------- ------- ------- -------
3,932.7 3,790.3 1,298.1 1,267.1
-------- ------- ------- -------
659.3 437.1 191.6 156.2
Income taxes 229.1 94.3 67.5 7.3
-------- ------- ------- -------
Income from continuing operations 430.2 342.8 124.1 148.9
Income from discontinued operations 276.1 1.1
-------- ------- ------- -------
Net Income $ 430.2 $ 618.9 $ 124.1 $ 150.0
======== ======= ======= =======
Earnings per share of common stock:
Basic:
Income from continuing operations
before investment transactions $ 5.52 $ 5.15 $ 1.97 $ 2.48
Gain (loss) on investment transactions 1.34 0.03 0.02 (0.12)
------- ------- ------- -------
Income from continuing operations 6.86 5.18 1.99 2.36
Income from discontinued operations 4.25 0.02
------- ------- ------- -------
Net Income $ 6.86 $ 9.43 $ 1.99 $ 2.38
======= ======= ======= =======
Diluted:
Income from continuing operations
before investment transactions $ 5.31 $ 5.00 $ 1.90 $ 2.40
Gain (loss) on investment transactions 1.29 0.02 0.02 (0.12)
------- ------- ------- -------
Income from continuing operations 6.60 5.02 1.92 2.28
Income from discontinued operations 4.12 0.02
------- ------- ------- -------
Net Income $ 6.60 $ 9.14 $ 1.92 $ 2.30
======= ======= ======= =======
Dividends per share of common stock $ 1.50 $ 1.50 $ 0.50 $ 0.50
======= ======= ======= =======
Ratio of earnings to fixed charges 2.73 2.19
==== ====
(Amounts in millions except for per share data)
</TABLE>
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<TABLE>
TRANSAMERICA CORPORATION AND SUBSIDIARIES
-----------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Nine months ended
September 30,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $ 430.2 $ 342.8
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Increase in life insurance policy
liabilities, excluding policyholder
balances on interest-sensitive policies 881.4 786.3
Amortization of policy acquisition costs 268.4 180.9
Policy acquisition costs deferred (479.0) (335.2)
Depreciation and amortization 260.6 253.1
Other 153.1 (39.5)
---------- ---------
Net cash provided by operations 1,514.7 1,188.4
INVESTING ACTIVITIES
Finance receivables originated (15,918.0) (16,185.3)
Finance receivables collected and sold 15,342.1 15,967.7
Purchase of investments (6,515.2) (8,717.9)
Sales and maturities of investments 6,201.8 7,551.6
Proceeds from the sale of and cash transactions
with discontinued operations 4.4 4,176.2
Purchase of finance receivables from
Whirlpool Financial Corporation (386.4)
Other (279.3) (488.0)
---------- ---------
Net cash provided (used) by
investing activities (1,550.6) 2,304.3
FINANCING ACTIVITIES
Proceeds from debt financing 1,808.9 3,310.7
Payment of notes and loans (1,067.3) (6,756.8)
Receipts from interest-sensitive policies
credited to policyholder account balances 6,843.4 5,376.2
Return of policyholder balances on
interest-sensitive policies (7,246.4) (5,029.5)
Treasury stock purchases (235.2) (424.0)
Redemption of preferred stock (318.9)
Other common stock transactions 88.7 89.2
Dividends (94.0) (98.9)
---------- ----------
Net cash provided (used) by financing activities 98.1 (3,852.0)
---------- ----------
Increase (decrease) in cash and cash equivalents 62.2 (359.3)
Cash and cash equivalents at beginning of year 132.9 441.0
---------- ----------
Cash and cash equivalents at end of period $ 195.1 $ 81.7
========== ==========
(Amounts in millions)
</TABLE>
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<TABLE>
TRANSAMERICA CORPORATION AND SUBSIDIARIES
-----------------
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
<CAPTION>
Nine months ended
September 30,
1998 1997
<S> <C> <C>
Balance at beginning of year $ 3,330.8 $ 2,920.2
Net income 430.2 618.9
Dividends on common stock (94.0) (96.3)
Dividends on preferred stock (2.6)
Treasury stock purchased (145.9) (252.3)
--------- ---------
Balance at end of period $ 3,521.1 $ 3,187.9
========= =========
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Consolidated Results
In the first nine months of 1998 income from continuing operations
before investment transactions increased $5.1 million (1%) over the first nine
months of 1997. Income from continuing operations before investment transactions
in the first nine months of 1997 included a $44.1 million benefit from the
resolution of prior year tax matters. Excluding the tax benefit, income from
continuing operations before investment transactions increased $49.2 million
(17%) due to increases in real estate, life insurance and commercial lending
operating results offset in part by lower leasing operating results and higher
unallocated interest and other expenses. Net income for the first nine months of
1998 included net after tax gains from investment transactions aggregating $83.9
million compared to $1.6 million in the first nine months of 1997. Net income
for the first nine months of 1997 included income from discontinued operations
of $276.1 million, including a $275 million after tax gain from the sale of the
branch based consumer lending business. Including the net after tax gains from
investment transactions, the 1997 income from discontinued operations and the
$44.1 million tax benefit in 1997, Transamerica's net income for the first nine
months of 1998 decreased $188.7 million (30%) from the first nine months of
1997.
In the third quarter of 1998 income from continuing operations before
investment transactions decreased $33.6 million (21%). Excluding the $44.1
million tax benefit described above, income from continuing operations before
investment transactions increased $10.5 million (9%) over the third quarter of
1997 primarily due to increases in real estate, commercial lending and life
insurance operating results, partially offset by lower leasing operating results
and higher unallocated interest and other expenses. Net income for the third
quarter of 1998 included net after tax gains from investment transactions
aggregating $1.1million compared to losses of $7.7 million in the third quarter
of 1997. Including the net after tax gains (losses) from investment
transactions, the income in 1997 from discontinued operations and the $44.1
million tax benefit in 1997, Transamerica's net income for the third quarter of
1998 decreased $25.9 million (17%) compared to the third quarter of 1997.
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The pretax gain (loss) on investment transactions, included in consolidated
revenues, comprised (amounts in millions):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net gain (loss) on sale
of investments $ 209.1 $ (9.6) $ 26.4 $ (10.1)
Adjustment for impairment in value (42.8) (2.0) (13.6)
Adjustment to amortization of
deferred policy acquisition
costs for realized gains/losses
on investment transactions (36.8) 14.6 (10.9) (1.4)
------- ------- ------- -------
$ 129.5 $ 3.0 $ 1.9 $ (11.5)
======= ======= ======= =======
</TABLE>
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>
Nine months ended September 30 Third Quarter
Revenues Income (loss) Income (loss)
1998 1997 1998 1997 1998 1997
(Amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Life insurance revenue and income
before investment transactions $ 3,021.2 $ 2,985.5 $ 248.8 $ 227.1 $ 85.9 $ 84.3
Commercial lending 511.4 361.4 72.3 63.1 25.3 21.2
Leasing 608.5 619.0 44.7 45.6 13.5 17.3
Amortization of goodwill (11.2) (9.5) (3.9) (3.1)
--------- --------- ------- ------- ------- -------
Total finance 1,119.9 980.4 105.8 99.2 34.9 35.4
Real estate services revenue and income
before investment transactions 341.0 283.9 79.4 54.0 34.5 17.3
Amortization of goodwill (0.1) (0.1)
--------- --------- ------- ------- ------- -------
Total real estate services 341.0 283.9 79.3 53.9 34.5 17.3
Unallocated interest and
other expenses 26.5 25.3 (87.6) (39.0) (32.3) 19.6
Consolidation eliminations (46.1) (50.7)
--------- --------- ------- ------- ------- -------
Revenues and income from continuing
operations before investment
transactions 4,462.5 4,224.4 346.3 341.2 123.0 156.6
Gains (losses) on investment transactions:
Life insurance 48.7 (17.6) 31.7 (11.5) (2.1) (13.7)
Real estate services 80.8 20.6 52.2 13.1 3.2 6.0
--------- --------- ------- ------- ------- -------
Total investment gains (losses) 129.5 3.0 83.9 1.6 1.1 (7.7)
--------- --------- ------- ------- ------- -------
Total revenues and income from
continuing operations $ 4,592.0 $ 4,227.4 $ 430.2 $ 342.8 $ 124.1 $ 148.9
========= ========= ======= ======= ======= =======
</TABLE>
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Page 9
Life Insurance
Net income from the life insurance operations for the nine and three
month periods ended September 30, 1998 increased by $64.9 million (30%) and
$13.2 million (19%) compared to the corresponding periods of 1997. Income before
investment transactions for the nine and three month periods ended September 30,
1998 increased $21.7 million (10%) and $1.6 million (2%) compared to the same
periods of 1997. Net after tax gains from investment transactions for the first
nine months of 1998 were $31.7 million compared to net losses of $11.5 million
in the same period in 1997. In the quarter ended September 30, 1998, net income
included net after tax losses from investment transactions of $2.1 million
compared to losses of $13.7 million in the same period of 1997. The nine month
results for 1997 were unfavorably affected by a $20.1 million after tax charge
for a legal settlement recorded in the life insurance division.
The life insurance division's income before investment transactions for
the nine and three month periods ended September 30, 1998 was $64 million and
$19.3 million compared to $46 million and $26.8 million in the same periods of
1997. Excluding the $20.1 million after tax charge discussed above, income for
the first nine months of 1998 decreased $2.1 million primarily due to
unfavorable claims activity offset in part by higher investment income and lower
operating expenses. The decrease in the third quarter of 1998 was primarily the
result of higher mortality claims.
Annuities' income before investment transactions for the nine and three
month periods ended September 30, 1998 was $41.1 million and $15.3 million
compared to $39.2 million and $14.7 million in the same periods of 1997. The
increases were primarily attributable to higher interest rate spreads and
increases in fee income related to variable annuities.
The asset management group's income before investment transactions was
$52.7 million and $16.4 million for the nine and three month periods ended
September 30, 1998 compared to $41.2 million and $13 million for the
corresponding periods of 1997. The increases in earnings were primarily
attributable to favorable interest rate spreads and increased fee income
resulting from overall growth in the line's asset management business.
Within the reinsurance line, income before investment transactions for the
nine and three month periods ended September 30, 1998 was $43.2 million and
$17.8 million. Comparable earnings for the same periods of 1997 were $44 million
and $9 million. For the nine month period, the decrease was primarily due to
higher reserve increases and operating expenses partially offset by an increase
in annuity production resulting in higher fee income. The increase in third
quarter income was due to favorable claims experience.
The Canadian line's income before investment transactions of $21.8
million and $7.5 million in the nine and three month periods ended September 30,
1998 were slightly lower than the earnings of $23.2 million and $8.6 million
over the same periods in 1997 due primarily to unfavorable foreign exchange
rates.
For the corporate line, income before investment transactions for the
nine and three month periods ended September 30, 1998 was $26 million and $9.7
million. Comparable earnings for the same periods of 1997 were $33.5 million and
$12.3 million. The decreases were attributable primarily to an increase in the
1998 effective tax rate, lower rental income and increased technology expenses.
After tax gains on investment transactions increased by $43.2 million
for the nine month period ended September 30, 1998 compared to the first nine
months of 1997. For the three month period ended September 30, 1998, the life
companies experienced investment transaction losses of $2.1 million after tax
compared to after tax losses of $13.7 million for the same three month period of
1997. Included in these amounts are after tax net gains of $83.4 million and
$13.8 million realized on sales of investments during the nine month and three
month periods ended September 30, 1998, compared to after tax net losses of
$19.6 million and $12.8 million realized during the comparable periods of 1997.
For the nine month and three month periods ended September 30, 1998, adjustments
to the amortization of deferred policy acquisition costs reduced investment
gains by $23.9 million and $7.1 million after tax. Investment transactions for
the nine and three month periods ended September 30, 1998 reflect adjustments of
$27.8 million and $8.8 million primarily for impairment in value of certain
fixed maturity investments.
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Page 10
Total life companies' net investment income increased by $50.9 million
(3%) and $5.6 million (1%) for the nine and three month periods ended September
30, 1998 compared to the same periods of 1997 which was principally the result
of a growing invested asset base.
Total life companies' premiums and other income decreased $15.3 million
(1%) and $31.1 million (7%), for the nine and three month periods ended
September 30, 1998 compared to the same periods of 1997. These decreases were
primarily due to decreased premiums from reinsurance and single premium
annuities, partially offset by increases in traditional life products and higher
fees from interest sensitive policies. The decrease in the reinsurance line's
premium revenue was primarily due to a decision to reduce the Company's exposure
to certain accident and health reinsurance contracts by retroceding premiums to
another company.
Total life companies' insurance benefit costs and expenses decreased
$6.8 million (less than 1%) and $32 million (4%) for the nine and three month
periods ended September 30, 1998 compared to the same periods of 1997. The 1997
nine month period included the charge for the legal settlement discussed above.
Excluding that item, there was an increase for the nine month period primarily
due to increases in interest credited on interest-sensitive policies, higher
insurance claims and increases in systems related costs. The decrease for the
quarter was primarily due to lower benefit costs, smaller reserve increases and
lower commission expenses.
Cash provided by life companies operations for the nine and three month
periods ended September 30, 1998 increased $289.4 million (38%) and $69.1
million (29%) over the same periods of 1997. These increases were primarily due
to the timing of the settlement of certain receivables and payables, including
reinsurance receivables and payables. The life insurance operation continues to
maintain a sufficiently liquid investment portfolio to cover operating
requirements. The remainder of our funds are invested in long term securities.
Commercial Lending
Commercial lending net income for the first nine months and third
quarter of 1998 was $62.6 million and $21.8 million compared to $55.1 million
and $18.5 million for the comparable periods of 1997. Commercial lending income,
before the amortization of goodwill, for the first nine months and third quarter
of 1998 increased $9.2 million (15%) and $4.1 million (19%) from 1997's first
nine months and third quarter. Higher margins due to higher average net
receivables outstanding contributed to increased profits and more than offset
increased operating expenses and provision for losses on receivables.
Revenues in the first nine months and third quarter of 1998 increased
$150 million (42%) and $48.5 million (40%) over the corresponding 1997 periods.
Revenues rose in the 1998 periods principally due to higher servicing and other
income on securitized receivables and higher average net receivables outstanding
attributable to growth.
Interest expense increased $18.7 million (15%) and $3.7 million (8%) in
the first nine months and third quarter of 1998 primarily due to higher average
debt levels needed to support receivables growth and higher average interest
rates during the first half of 1998. Operating expenses for the first nine
months and third quarter of 1998 increased $92.1 million (73%) and $29.9 million
(70%) primarily as a result of higher levels of business volume and outstanding
receivables and the integration of the Whirlpool Financial operations. The
provision for losses on receivables for the first nine months and third quarter
of 1998 increased $27.5 million (268%) and $10 million (369%) from the
corresponding 1997 periods principally as a result of higher credit losses in
the retail portfolio and additional provisions in the first and third quarters
of 1998 on the insurance premium finance 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 0.70% for the
first nine months and 0.73% for the third quarter of 1998 compared to 0.14% and
0.12% for the comparable periods of 1997.
Net commercial finance receivables outstanding increased $1.1 billion
(32%) from December 31,1997. The increase in receivables was largely the result
of continued growth in the business credit portfolio, the decision not to sell
the insurance premium finance operation and reclassification of those
receivables from assets held for sale to finance receivables, and the
acquisition during the first half of 1998 of the retail finance business and the
remaining international assets from Whirlpool Financial Corporation which
amounted to $387 million of net finance receivables. This completed the
acquisition of $1.1 billion in net receivables and other assets representing
substantially all of the inventory and retail finance business from Whirlpool
Financial Corporation. Management has established an allowance for losses equal
to 2.43% of net commercial finance receivables outstanding as of September 30,
1998 compared to 2.35% at December 31, 1997.
<PAGE>
Page 11
Delinquent receivables are defined as the instalment balance for
inventory finance and business credit asset based lending receivables more than
60 days past due and the receivable balance for all other receivables over 60
days past due. Delinquent receivables were $44.8 million (0.91% of receivables
outstanding) at September 30, 1998 compared to $18 million (0.48% of receivables
outstanding) at December 31, 1997. The increase in delinquent receivables at
September 30, 1998 was primarily due to the inclusion of the insurance premium
finance receivables which were reported as assets held for sale at December
31,1997, and the receivables of the new retail lending operation. Delinquent
insurance premium finance receivables at December 31,1997 were $14.2 million.
Nonearning receivables are defined as balances from borrowers that are
over 90 days delinquent for non credit card receivables or at such earlier time
as full collectibility becomes doubtful. Nonearning receivables on revolving
credit card accounts included in retail are defined as balances from borrowers
in bankruptcy and accounts for which full collectibility is doubtful. Accrual of
finance charges is suspended on nonearning receivables until such time as past
due accounts are collected. Nonearning receivables were $48.7 million (0.99% of
receivables outstanding) at September 30, 1998 compared to $26.4 million (0.71%
of receivables outstanding) at December 31, 1997. The increase in nonearning
receivables at September 30,1998 was primarily due to the inclusion of the
premium finance receivables which were reported as assets held for sale at
December 31,1997 and the receivables of the new retail lending operation.
Nonearning insurance premium finance receivables at December 31,1997 were $7.5
million.
Leasing
Leasing net income for the first nine months and third quarter of 1998
was $43.2 million and $13 million compared to $44 million and $16.7 million for
the first nine months and third quarter of 1997. Leasing income, before the
amortization of goodwill, was $44.7 million and $13.5 million in the first nine
months and third quarter of 1998 compared to $45.6 million and $17.3 million for
the corresponding periods of 1997.
Leasing income, before the amortization of goodwill, decreased $900,000
(2%) and $3.8 million (22%) for the first nine months and third quarter of 1998
compared to the corresponding periods of 1997. Lower earnings in the third
quarter of 1998 were primarily due to lower per diem rates and fewer on hire
standard and reefer containers due to continued weak demand for this equipment
type. European trailer results were also lower due to increased operating
expense from a larger rental fleet. Partially offsetting these decreases was an
increase in chassis performance associated with demand for chassis used for
domestic container transportation.
Revenue for the first nine months and third quarter of 1998 decreased
$10.5 million (2%) and $6 million (3%) compared to the corresponding periods of
1997. Revenue was lower for standard containers due to a smaller fleet
attributable to accelerated equipment disposition and from lower per diem rates.
Rail trailer revenues were lower due to fewer units on hire associated with the
continued decline in the demand for this equipment type and refrigerated
container revenue was lower due to lower utilization and per diem rates.
Partially offsetting these decreases were increased revenues due to more units
on hire attributable to larger fleets for tank containers, chassis, domestic
containers and European trailers.
Expenses for the first nine months and third quarter of 1998 decreased
$9.9 million (2%) and $300,000 (less than 1%) compared to the corresponding
periods for 1997. Decreases in ownership expenses for standard containers and
rail trailers attributable to smaller fleets were partially offset by increased
ownership expenses attributable to larger fleets of tank containers, chassis,
domestic containers and European trailers. Selling and administrative expenses
increased in the 1998 periods primarily from expansion of the European trailer
business and increased Year 2000 information technology expenditures.
The combined utilization of standard containers, refrigerated
containers, domestic containers, tank containers and chassis averaged 79% for
both the first nine months and third quarter of 1998 compared to 78% and 79% for
the first nine months and third quarter of 1997. Rail trailer utilization was
81% and 84% for the first nine months and third quarter of 1998 compared to 83%
and 84% for the first nine months and third quarter of 1997. European trailer
utilization was 89% and 86% for the first nine months and third quarter of 1998
compared to 91% and 90% for the first nine months and third quarter of 1997.
<PAGE>
Page 12
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 1998 increased $64.5 million
(96%) over the first nine months of 1997. Net income included net after tax
gains from investment transactions of $52.2 million and $13.1 million in the
first nine months of 1998 and 1997. Income before investment transactions in the
first nine months of 1998 increased $25.4 million (47%) from the first nine
months of 1997 primarily due to the effects of higher levels of mortgage
originations and refinancings. Income before investment transactions in the
first nine months of 1997 included a $15.5 million after tax gain realized on
the sale of a real estate property.
Net income for the third quarter of 1998 increased $14.4 million (62%)
over the third quarter of 1997. Net income included net after tax gains from
investment transactions of $3.2 million and $6 million in the third quarters of
1998 and 1997. Income before investment transactions in the third quarter of
1998 increased $17.2 million (99%) from the third quarter of 1997 primarily due
to the effects of higher levels of mortgage originations and refinancings.
Revenues for the first nine months of 1998 increased $117.3 million
(39%) over the first nine months of 1997. Revenues for the third quarter of 1998
increased $24.7 million (24%) over the third quarter of 1997. The increases in
the nine month period and third quarter of 1998 were primarily due to increased
gains from investment transactions for the nine month period and the higher
level of mortgage originations and refinancings noted above.
Unallocated Interest and Expenses
Unallocated interest and expenses, after related income taxes, for the
first nine months and third quarter of 1998 increased $48.6 million (125%) and
$51.9 million (265%). Unallocated interest and expenses in the first nine months
and third quarter of 1997 included a $44.1 million benefit from the satisfactory
resolution of prior year tax issues. Excluding the tax benefit, unallocated
interest and expenses increased $4.5 million (5%) and $7.8 million (32%). The
increases were primarily due to costs associated with the Capital Trust
Pass-Through Securities issued in November 1997 and expenses associated with the
Corporation's long term incentive plan.
Discontinued Operations
In the first nine months and third quarter of 1998, results from
discontinued operations were break even. In the first nine months and third
quarter of 1997, income from discontinued operations was $276.1 million
(consisting almost entirely of a net gain of $275 million from the sale of the
branch based consumer lending operations) and $1.1 million.
Comprehensive Income
In accordance with Financial Accounting Standard No. 130, Reporting
Comprehensive Income, comprehensive income for the nine months and the three
months ended September 30, 1998 and 1997 comprised:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $ 430.2 $ 618.9 $ 124.1 $ 150.0
Other comprehensive income, net of tax:
Unrealized gains (losses) from investments
marked to fair value:
Unrealized holding gains (losses)
arising during period:
Equity securities 11.3 308.9 69.0 169.4
Fixed maturities 150.1 269.7 27.1 311.5
Less: reclassification adjustment
for (gains) losses included in net income (83.9) (1.6) (1.1) 7.7
-------- --------- ------- -------
507.7 1,195.9 219.1 638.6
Foreign currency translation adjustments (3.1) (6.5) 0.3 4.5
-------- --------- ------- -------
Comprehensive income $ 504.6 $ 1,189.4 $ 219.4 $ 643.1
======== ========= ======= ========
</TABLE>
<PAGE>
Page 13
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.
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 industries and retain the capacity through committed
credit lines or liquid assets to repay working capital loans from the
Corporation.
In May 1997, Transamerica announced that its board of directors had
authorized additional purchases of up to 6 million shares of the company's
common stock. At September 30, 1998, there were 446,600 shares remaining to be
purchased under this authorization. During the third quarter of 1998,
Transamerica purchased 342,300 shares for a total cost of $38.7 million.
Investment Portfolio
Transamerica, principally through its life insurance subsidiaries,
maintains an investment portfolio aggregating $33.2 billion at September 30,
1998, of which $29.8 billion was invested in fixed maturities. At September 30,
1998, 94.1% of the fixed maturities were rated as "investment grade" with an
additional 3.6% in the BB category or its equivalent. The amortized cost of
fixed maturities was $27.1 billion resulting in a net unrealized gain position
of $2.7 billion at September 30, 1998 before the effect of income taxes and
adjustments to deferred acquisition costs and policy liabilities. The amortized
cost of delinquent below investment grade securities, before provision for
impairment in value, was $1.9 million at September 30, 1998 and December 31,
1997. Adjustment for impairment in value has been made to reduce the amortized
cost of certain fixed maturity investments by $81 million at September 30, 1998
and $72.9 million at December 31, 1997.
In addition to the investments in fixed maturities, $816 million (2% of
the investment portfolio), net of allowance for losses of $25.6 million, was
invested in mortgage loans and real estate, including $722.8 million in
commercial mortgage loans, $76.2 million in real estate investments, $1.4
million in foreclosed real estate and $41.2 million in residential mortgage
loans. Problem loans, defined as restructured loans yielding less than 8%, and
delinquent loans, totaled $2.7 million at September 30, 1998 and $2.3 million at
December 31, 1997. Allowances for possible losses of $1.2 million at September
30, 1998 and $1.5 million at December 31, 1997 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 $10.1
billion at September 30, 1998 and $10 billion at December 31, 1997 were
outstanding and designated as hedges of Transamerica's investment portfolio. In
addition, derivative financial instruments with a notional amount of $4.4
billion at September 30, 1998 and $4 billion at December 31, 1997 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, 1998, 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, 1998
and December 31, 1997 was a net benefit of $348.3 million and $212.7 million
comprising agreements with aggregate gross benefits of $388.2 million and $238
million and agreements with aggregate gross obligations of $39.9 million and
$25.3 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
Year 2000 Issue
Transamerica has developed a plan to modify its information systems
technology to recognize the Year 2000. Transamerica's project to address the
Year 2000 issue includes ensuring the readiness of its business applications,
operating systems and hardware on mainframes, personal computers and wide and
local area networks. The project also addresses issues related to
non-information technology embedded software and equipment, the readiness of key
business partners and updating business continuity plans.
External consultants with expertise in reviewing project management and
oversight activities for Year 2000 remediation plans were engaged to conduct a
review of Transamerica's Year 2000 readiness plans during the second quarter of
1998. Transamerica has also engaged experts to assist in developing work plans
and cost estimates and to complete remediation activities.
The project has four phases: (1) problem determination, (2) planning
and resource acquisition, (3) remediation and (4) testing and acceptance. During
phase one, Transamerica determined the size and scope of the problem and
prepared an inventory of the hardware, software, interfaces and other items that
may be affected. Software code was scanned. Third parties were contacted to
determine the status of their efforts. During phase two, Transamerica assessed
the risks and decided whether to fix, replace, discard, or test the items
identified in the inventory then, if necessary, prepared a project plan and
allocated appropriate resources. Phase three covers remediation where date
occurrences in internally maintained systems are analyzed and corrected.
Software and hardware are replaced where necessary. Operating systems that
interface with outside parties are examined in more detail and modified if
required. Phase four includes testing and acceptance of software, hardware,
third party interfaces and related items to ensure they will work in a number of
different Year 2000 scenarios.
The most significant categories of outside parties to Transamerica are
agents and brokers, financial institutions, software vendors, governmental
agencies, third party service providers and utility providers (gas, electric and
telecommunications). Transamerica's assessment of its key business partners is
in the preliminary stages. Surveys have been mailed, follow up contacts are
underway and strategies are being developed to address issues as they are
identified. This effort is expected to continue well into 1999.
Following is the status of Transamerica's Year 2000 compliance efforts
for critical systems at each of its business segments.
The life insurance operation had completed a significant portion of the
remediation phase as of September 30, 1998, and is expected to be substantially
completed by March 1999. As of September 30, 1998, testing was well underway and
is expected to be substantially completed by June 1999.
The commercial lending operation had completed a significant portion of
the remediation phase as of September 30, 1998. It expects the remaining work to
be concluded by the end of 1998. As of September 30, 1998, testing had commenced
and is expected to be substantially finished by March 1999. The commercial
lending operations systems in Europe, which affects a small percentage of the
business, will be remediated and tested in 1999.
The leasing operation had significantly completed the remediation phase as
of September 30, 1998. Testing was well underway as of September 30, 1998, and
is expected to be substantially completed by the end of 1998. In addition to the
systems being remediated, the customer service, fleet management and equipment
repair and maintenance system is scheduled for replacement in 1999.
The major business in the real estate segment, Transamerica Real Estate
Tax Service, and most of the other businesses in this segment had completed a
significant portion of the remediation phase as of September 30, 1998 and the
remediation phase is expected to be substantially completed by the end of 1998.
At September 30, 1998, testing had commenced and the testing phase, including
testing with numerous governmental agencies, is expected to be substantially
completed by September 30, 1999.
<PAGE>
Page 15
The projected total cost associated with required modifications to
become ready for the Year 2000 is between $25 million and $35 million, which is
being expensed as incurred. At this time there can be no assurance that these
estimates will not be exceeded. Actual results may differ significantly from
those projected. Some factors that may cause actual expenditures to differ
include the availability and cost of trained personnel and the ability to locate
and correct all relevant computer problems. This estimate includes internal
costs, but excludes the costs to upgrade and replace systems in the normal
course of business. The total amount expended on the project through September
30, 1998, was $14.4 million. Transamerica does not expect the project to have a
significant effect on its financial condition or results of operations.
Transamerica believes it will achieve Year 2000 readiness; however, the
size and complexity of its systems and the need for them to interface with other
systems internally and with those of its customers, vendors, partners,
governmental agencies and other outside parties, create the possibility that
some of its systems may experience Year 2000 problems. Specific factors that
give rise to this concern include a possible loss of qualified resources,
failure to identify and remediate all affected systems, noncompliance by third
parties whose systems and operations interface with Transamerica's systems and
other similar uncertainties. Transamerica is developing contingency plans to
minimize any potential disruptions to operations, especially from externally
interfaced systems over which it has limited or no control.
Euro Conversion
Transamerica conducts business in a number of the European countries
that are converting to a common currency, the "euro," as of January 1, 1999.
Transamerica has evaluated the potential impact of the Euro conversion on its
operations. Its evaluation considered competitive position, potential
information technology and currency risks, derivative and financial instrument
exposure, continuity of contracts and taxation. As a result of this evaluation,
Transamerica is in the process of upgrading those information systems necessary
to support transactions denominated in the euro. Transamerica derived revenues
from the group of eleven countries converting to the euro of $65.7 million and
$21.8 million for the nine and three month periods ended September 30, 1998 and
had total assets in these countries of $424.5 million at September 30, 1998.
Transamerica does not anticipate that the euro conversion will have a material
impact on its financial condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Form of $150 Nonqualified Stock Option Agreement granted with Tandem
Limited Stock Appreciation Right under the Registrant's 1995 Performance Stock
Option Plan to Frank C. Herringer.
10.2 Form of Tandem Limited Stock Appreciation Right (tandem to $150
Option) granted under the Registrant's 1995 Performance Stock Option Plan to
Frank C. Herringer.
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: November 13, 1998
Exhibit 10.1
TRANSAMERICA CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
Transamerica Corporation (the "Company") hereby grants you,
Frank C. Herringer (the "Employee"), a nonqualified stock option under the
Company's 1995 Performance Stock Option Plan (the "Plan"), to purchase shares of
common stock of the Company ("Shares"). The date of this Agreement is January 2,
1998. In general, the latest date this option will expire is January 2, 2008
(the "Expiration Date"). However, as provided in Appendix A (attached hereto),
this option may expire earlier than the Expiration Date. Subject to the
provisions of Appendix A and of the Plan, the principal features of this option
are as follows:
Maximum Number of Shares Purchasable with this Option: 645,000
Purchase Price per Share: $150.00
Scheduled Vesting Date: The first date on which both of the following have
occurred: (a) the tenth trading day (occurring within a period of 30 consecutive
trading days before January 3, 2003) on which the Fair Market Value of a Share
is at least $150, and (b) as determined in the discretion of the Committee, the
Company's total shareholder return equals or exceeds the median level of
shareholder return for a subset of the S&P 500 Financial Index during the period
from January 2, 1998 to the tenth trading day in (a) plus any days thereafter
until such median level is met or, if such period is less than one year, during
the one-year period that begins prior to January 2, 1998 and ends on the tenth
trading day in (a) or any day thereafter until such median level is met (if it
is met during such one-year period).
<TABLE>
<CAPTION>
Event Triggering Termination of Option Maximum Time to Exercise After
Triggering Event*
<S> <C>
Termination of Employment (except as shown below) 3 months
Termination of Employment due to Good Reason or by the Company other until Expiration Date
than for Cause (except as shown below)
Termination of Employment due to Disability 3 years
Termination of Employment due to Early or Normal Retirement 5 years
Termination of Employment due to death 3 years
Termination of Employment within 1 year after a Change of Control for a 1 year
reason other than Disability, Good Reason, Cause, Early or Normal
Retirement or death
Failure of Option to Vest None
* However, in no event may this option be exercised after the Expiration Date
(except in certain cases of the death of the Employee).
</TABLE>
Your signature below indicates your agreement and
understanding that this option is subject to all of the terms and conditions
contained in Appendix A and the Plan. For example, important additional
information on vesting and termination of this option is contained in Paragraphs
4 through 6 of Appendix A. ACCORDINGLY, PLEASE BE SURE TO READ ALL OF APPENDIX
A, WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THIS OPTION.
TRANSAMERICA CORPORATION EMPLOYEE
By___________________________ ____________________
Title: Assistant Secretary Frank C. Herringer
<PAGE>
APPENDIX A
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
1. Grant of Option. The Company hereby grants to the Employee
under the Plan, as a separate incentive in connection with his or her employment
and not in lieu of any salary or other compensation for his or her services, a
nonqualified stock option to purchase, on the terms and conditions set forth in
this Agreement and the Plan, all or any part of an aggregate of 645,000 Shares.
The option granted hereby is not intended to be an Incentive Stock Option within
the meaning of Section 422 of the Code. This Agreement reflects the Company's
obligation under Section 2(b)(iv) of that certain employment agreement dated
November 4, 1997 between the Company and the Employee (the "Employment
Agreement").
2. Exercise Price. The purchase price per Share for this
option (the "Exercise Price") shall be $150.00.
3. Number of Shares. The number and class of Shares specified
in Paragraph 1 above, the Exercise Price and/or the Fair Market Value specified
in Paragraph 4 below, are subject to adjustment by the Committee in the event of
any merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, Share combination, distribution or other
change in the corporate structure of the Company affecting the Shares (an
"Event"). Any such adjustment shall be made by the Committee as constituted
immediately prior to the applicable Event (the "Applicable Committee") and shall
be designed so that if the Employee (or any beneficiary) exercises this option
after an Event, he or she shall receive (upon payment of the Exercise Price for
each Share exercised) the securities and any other property (other than regular
cash dividends) which the Employee (or beneficiary) would have been entitled to
had he or she instead acquired the Shares on the Grant Date and held them
through the date of exercise. Notwithstanding the preceding, (a) the number of
Shares subject to this option always shall be a whole number, and (b) if the
Applicable Committee determines that the delivery of securities or other
property (other than Shares) from any such adjustment would create an undue
burden or expense, the Employee (or beneficiary) instead shall receive a lump
sum cash payment equal to the fair market value (as determined by the Applicable
Committee) of such securities or other property.
4. Vesting Schedule. The right to exercise this option will
vest as to 100% of the Shares specified in Paragraph 1 above on the first date
on which both of the following conditions shall have been satisfied: (a) the
tenth trading day (occurring within a period of 30 consecutive trading days) on
which the Fair Market Value of a Share is at least $150.00, provided that
vesting will occur only if such tenth trading day occurs on or before January 2,
2003, and (b) the Company's total shareholder return (change in share price plus
reinvestment of any dividends, as determined in the discretion of the Committee)
equals or exceeds the median level of shareholder return for a subset of the
Standard & Poor's ("S&P") 500 Financial Index (as determined in the discretion
of the Committee) during the period from January 2, 1998 to the tenth trading
day in (a) plus any days thereafter until such median level is met or, if such
period is less than one year, during the one-year period that begins prior to
January 2, 1998 and ends on the tenth trading day in (a) or any day thereafter
until such median level is met (if it is met during such one-year period).
However, on any scheduled vesting date, vesting actually will occur only if the
Employee is an Executive on such date. Notwithstanding the foregoing, in the
event of the Employee's Termination of Employment due to Early Retirement,
Normal Retirement, Disability (hereafter, as defined in the Plan) or death, (i)
if the right to exercise any particular Shares would have vested within six (6)
months after such Termination of Employment (had the Employee not incurred a
Termination of Employment), then the right to exercise such Shares will vest on
the date that such right otherwise would have vested, and (ii) if the right to
exercise any particular Shares would have vested more than six (6) months after
such Termination of Employment (had the Employee not incurred a Termination of
Employment), then the right to exercise a portion of such Shares will vest on
the date that such right otherwise would have vested, as determined in the
discretion of the Committee based on the time elapsed from the Grant Date to the
Termination of Employment and the vesting date. Notwithstanding any contrary
provision of this Paragraph 4, in the event of the Employee's Termination of
Employment (A) by the Company other than for Cause (hereafter, as defined in the
Employment Agreement), death or Disability or (B) by the Employee for Good
Reason (hereafter, as defined in the Employment Agreement), the right to
exercise one hundred percent (100%) of the Shares subject to this option shall
vest on the date that such Termination of Employment occurs.
5. Termination of Option. In the event of the Employee's
Termination of Employment for Good Reason or by the Company for any reason other
than Cause, Early or Normal Retirement, Disability or death, the Employee may,
prior to the Expiration Date, exercise any vested but unexercised portion of
this option. Except as provided in the fifth sentence of this Paragraph 5, in
the event of the Employee's Termination of Employment by the Employee for any
reason other than Good Reason, Early or Normal Retirement, Disability or death,
the Employee may, within three (3) months after the date of such Termination, or
prior to the Expiration Date, whichever shall first occur, exercise any vested
but unexercised portion of this option. In the event of the Employee's
Termination of Employment due to Disability, the Employee may, within three (3)
years after the date of such Termination, or prior to the Expiration Date,
whichever shall first occur, exercise any vested but unexercised portion of this
option. In the event of the Employee's Termination of Employment due to Early or
Normal Retirement, the Employee may, within five (5) years from the date of such
Termination, or prior to the Expiration Date, whichever shall first occur,
exercise any vested but unexercised portion of this option. Except if a longer
period is applicable as provided in the first sentence of this Paragraph 5, in
the event of the Employee's Termination of Employment within one year after a
Change of Control for any reason other than Early or Normal Retirement,
Disability or death, the Employee may, within one (1) year after the date of
such Termination, or prior to the Expiration Date, whichever shall first occur,
exercise any vested but unexercised portion of this option. In addition, this
option shall terminate (a) on the first date on which the option no longer may
become exercisable pursuant to Paragraph 4 above, or (b) upon exercise of the
tandem limited stock appreciation right (the "TLSAR") granted with this option
(but only to the extent provided in the following sentence). For each Share with
respect to which the TLSAR is exercised, the right to exercise 2.7447 of the
Shares subject to this option shall immediately terminate, provided that the
number of Shares which so terminate shall be rounded to the nearest whole number
(or to such number as is appropriate to ensure that the total number of shares
covered by this option does not exceed the number specified in Paragraph 1
above).
6. Death of Employee. In the event that the Employee dies
prior to the expiration of this option in accordance with the provisions of
Paragraph 5 above, the Employee's designated beneficiary, or if no beneficiary
survives the Employee, the administrator or executor of the Employee's estate,
may, within three (3) years after the date of death, exercise any vested but
unexercised portion of the option. Any such transferee must furnish the Company
(a) written notice of his or her status as a transferee, (b) evidence
satisfactory to the Company to establish the validity of the transfer of this
option and compliance with any laws or regulations pertaining to such transfer,
and (c) written acceptance of the terms and conditions of this option as set
forth in this Agreement. The three (3) year limit described in the preceding
sentence shall not cause this option to expire before the Expiration Date if,
prior to the Employee's death, the Employee incurred a Termination of Employment
for Good Reason or was terminated by the Company for any reason other than
Cause, Early or Normal Retirement or Disability.
7. Persons Eligible to Exercise Option. This option shall be
exercisable during the Employee's lifetime only by the Employee. This option is
not transferable, except that the Employee may transfer this option (a) by a
valid beneficiary designation made in a form and manner acceptable to the
Committee, or (b) by will or the applicable laws of descent and distribution.
8. Exercise of Option. This option may be exercised by the
person then entitled to do so as to any Shares which may then be purchased (a)
by giving written notice of exercise to the Secretary of the Company (or his or
her designee), specifying the number of full Shares to be purchased and
accompanied by full payment of the Exercise Price (and the amount of any income
tax the Company is required by law to withhold by reason of such exercise), and
(b) by giving satisfactory assurances in writing if requested by the Company,
signed by the person exercising the option, that the Shares to be purchased upon
such exercise are being purchased for investment and not with a view to the
distribution thereof.
9. Suspension of Exercisability. If at any time the Company
shall determine, in its discretion, that the listing, registration or
qualification of the Shares upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory
authority, is necessary or desirable as a condition of the purchase of Shares
hereunder, this option may not be exercised, in whole or in part, unless and
until such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Company.
The Company shall make reasonable efforts to meet the requirements of any such
state or federal law or securities exchange and to obtain any such consent or
approval of any such governmental authority.
10. No Rights of Stockholder. Neither the Employee (nor any
beneficiary) shall be or have any of the rights or privileges of a stockholder
of the Company in respect of any of the Shares issuable pursuant to the exercise
of this option, unless and until certificates representing such Shares shall
have been issued, recorded on the records of the Company or its transfer agents
or registrars, and delivered to the Employee (or beneficiary).
11. Address for Notices. Any notice to be given to the Company
under the terms of this Agreement shall be addressed to the Company, in care of
its Secretary, at 600 Montgomery Street, San Francisco, California 94111, or at
such other address as the Company may hereafter designate in writing.
12. Option is Not Transferable. Except as otherwise provided
in Paragraphs 6 and 7 above, this option and the rights and privileges conferred
hereby may not be transferred, pledged, assigned or otherwise hypothecated in
any way (whether by operation of law or otherwise) and shall not be subject to
sale under execution, attachment or similar process. Upon any attempt to
transfer, pledge, assign, hypothecate or otherwise dispose of this option, or of
any right or privilege conferred hereby, or upon any attempted sale under any
execution, attachment or similar process, this option and the rights and
privileges conferred hereby immediately shall become null and void.
13. Maximum Term of Option. Notwithstanding any other
provision of this Agreement except Paragraph 6 above relating to the death of
the Employee (in which case this option is exercisable to the extent set forth
therein), this option is not exercisable after the Expiration Date.
14. Binding Agreement. Subject to the limitation on the
transferability of this option contained herein, this Agreement shall be binding
upon and inure to the benefit of the heirs, legatees, legal representatives,
successors and assigns of the parties hereto.
15. Conditions to Exercise. The Exercise Price for this option
must be paid in the legal tender of the United States or, in the Committee's
sole discretion, in Shares. Exercise of this option will not be permitted until
satisfactory arrangements have been made for the payment of the appropriate
amount of withholding taxes (as determined by the Company).
16. Plan Governs. This Agreement is subject to all of the
terms and provisions of the Plan. In the event of a conflict between one or more
provisions of this Agreement and one or more provisions of the Plan, the
provisions of the Plan shall govern. Except as otherwise provided in this
Agreement, capitalized terms and phrases used and not defined in this Agreement
shall have the meaning set forth in the Plan.
17. Committee Authority. The Committee shall have all
discretion, power, and authority to interpret the Plan and this Agreement and to
adopt such rules for the administration, interpretation and application of the
Plan as are consistent therewith. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Employee, the Company and all other interested persons, and shall be
given the maximum deference permitted by law. No member of the Committee shall
be personally liable for any action, determination or interpretation made in
good faith with respect to the Plan or this Agreement.
18. Captions. The captions provided herein are for convenience
only and are not to serve as a basis for the interpretation or construction of
this Agreement.
19. Agreement Severable. In the event that any provision in
this Agreement shall be held invalid or unenforceable, such provision shall be
severable from, and such invalidity or unenforceability shall not be construed
to have any effect on, the remaining provisions of this Agreement.
20. Modifications to the Agreement. This Agreement (a)
constitutes the entire understanding of the parties on the subjects covered, and
(b) shall control in the event of any inconsistency between this Agreement and
the Employment Agreement related to the subject matter covered by this
Agreement. The Employee expressly warrants that he or she is not executing this
Agreement in reliance on any promises, representations, or inducements other
than those contained herein. Modifications to this Agreement or the Plan can be
made only in an express written contract executed by a duly authorized officer
of the Company.
Exhibit 10.2
TRANSAMERICA CORPORATION
TANDEM LIMITED STOCK APPRECIATION RIGHT AGREEMENT
In connection with the grant under the Transamerica
Corporation 1995 Performance Stock Option Plan (the "Plan") of a nonqualified
stock option to purchase shares of common stock of Transamerica Corporation
("Shares") at a purchase price per Share of $150.00 (the "Related Option"),
Transamerica Corporation (the "Company") hereby grants you, Frank C. Herringer
(the "Employee"), a tandem limited stock appreciation right (a "TLSAR") under
the Plan, to surrender all or part of the unexercised portion of the Related
Option in exchange for a payment from the Company pursuant to this TLSAR. The
date of this Agreement is January 2, 1998 (the "Grant Date"). In general, the
latest date this TLSAR will expire is January 2, 2008 (the "Expiration Date").
However, as provided in Appendix A (attached hereto), this TLSAR may expire
earlier than the Expiration Date. Subject to the provisions of Appendix A and of
the Plan, the principal features of this TLSAR are as follows:
<TABLE>
<CAPTION>
Number of Shares to
Which this TLSAR Pertains: 235,000 Exercise Price per Share: $105.19
Scheduled Vesting Date: The date on which a Change of Control occurs.
Event Triggering Termination of TLSAR Maximum Time to Exercise After
Triggering Event*
<S> <C>
Termination of Employment (except as shown below) 3 months
Termination of Employment due to Disability 3 years
Termination of Employment due to Early or Normal Retirement 5 years
Termination of Employment due to death 3 years
Change of Control 60 days
Failure of the Related Option to Vest None
Exercise of the Related Option None
* However, in no event may this TLSAR be exercised after the Expiration Date
(except in certain cases of the death of the Employee).
</TABLE>
Your signature below indicates your agreement and
understanding that this TLSAR is subject to all of the terms and conditions
contained in Appendix A and the Plan. For example, important additional
information on vesting and termination of this TLSAR is contained in Paragraphs
4 through 6 of Appendix A. ACCORDINGLY, PLEASE BE SURE TO READ ALL OF APPENDIX
A, WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THIS TLSAR.
TRANSAMERICA CORPORATION EMPLOYEE
By___________________________ ______________________
Title: Assistant Secretary Frank C. Herringer
<PAGE>
APPENDIX A
TERMS AND CONDITIONS OF TANDEM LIMITED STOCK APPRECIATION RIGHTS
1. Grant of TLSAR. The Company hereby grants to the Employee
under the Plan, in connection with the grant of the Related Option, and as a
separate incentive in connection with his or her employment and not in lieu of
any salary or other compensation for his or her services, a TLSAR pertaining to
all or any part of an aggregate of 235,000 Shares, which TLSAR entitles the
Employee to surrender, on the terms and conditions set forth in this Agreement
and the Plan, all or part of the Related Option in exchange for a payment from
the Company in the amount determined under Paragraph 9 below.
2. Exercise Price. The exercise price per Share for this TLSAR
(the "Exercise Price") shall be $105.19, which is equal to the Fair Market Value
per Share on the Grant Date.
3. Number of Shares. The number and class of Shares specified
in Paragraph 1 above, and/or the Exercise Price, are subject to adjustment by
the Committee in the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, split-up, Share
combination, distribution or other change in the corporate structure of the
Company affecting the Shares (an "Event"). Any such adjustment shall be made by
the Committee as constituted immediately prior to the applicable Event;
provided, however, that the number of Shares subject to this TLSAR always shall
be a whole number.
4. Vesting Schedule. The right to exercise this TLSAR will
vest as to 100% of the Shares subject to the TLSAR upon the occurrence of a
Change of Control, provided that vesting will occur only if the Employee is an
Executive on the date of the Change of Control. In the event of the Employee's
Termination of Employment due to Early Retirement, Normal Retirement, Disability
or death, the right to exercise a portion of the Shares to which this TLSAR
pertains will vest on the date that such right otherwise would have vested, as
determined in the discretion of the Committee based on the time elapsed from the
Grant Date to the Termination of Employment and the vesting date.
5. Termination of TLSAR. In the event of the Employee's
Termination of Employment for any reason other than Early or Normal Retirement,
Disability or death, this TLSAR shall immediately terminate, provided that if
this TLSAR became vested prior to such Termination of Employment, the Employee
may, prior to the Expiration Date and subject to the last two sentences of this
Paragraph 5, exercise the TLSAR. In the event of the Employee's Termination of
Employment due to Disability, the Employee may, within three (3) years after the
date of such Termination, or prior to the Expiration Date, whichever shall first
occur, exercise this TLSAR (if then vested). In the event of the Employee's
Termination of Employment due to Early or Normal Retirement, the Employee may,
within five (5) years from the date of such Termination, or prior to the
Expiration Date, whichever shall first occur, exercise this TLSAR (if then
vested). In addition, this TLSAR shall terminate on the first to occur of the
following: (a) the first date on which the Related Option no longer may become
exercisable, (b) the last day of the period of sixty (60) consecutive days which
begins on the date of a Change of Control, or (c) upon exercise of the Related
Option (but only to the extent provided in the following sentence). For each
Share with respect to which the Related Option is exercised, the right to
exercise 0.3643 of the Shares subject to this TLSAR shall immediately terminate,
provided that the number of Shares which so terminate shall be rounded to the
nearest whole number (or to such number as is appropriate to ensure that the
total number of Shares covered by this TLSAR does not exceed the number
specified in Paragraph 1 above).
6. Death of Employee. In the event that the Employee dies
prior to the expiration of this TLSAR in accordance with the provisions of
Paragraph 5 above, the Employee's designated beneficiary or beneficiaries, or if
no beneficiary survives the Employee, the administrator or executor of the
Employee's estate, nevertheless may, within three (3) years after the date of
death, exercise any vested but unexercised portion of the TLSAR, but only to the
extent that such right was transferred with respect to the Related Option. Any
such transferee must furnish the Company (a) written notice of his or her status
as a transferee of this TLSAR, (b) evidence satisfactory to the Company to
establish the validity of the transfer of this TLSAR and compliance with any
laws or regulations pertaining to such transfer, and (c) written acceptance of
the terms and conditions of this TLSAR as set forth in this Agreement.
7. Persons Eligible to Exercise TLSAR. This TLSAR shall be
exercisable during the Employee's lifetime only by the Employee. This TLSAR is
not transferable, except that the Employee may transfer this TLSAR (a) by a
valid beneficiary designation made in a form and manner acceptable to the
Committee, or (b) by will or the applicable laws of descent and distribution, in
which case this TLSAR shall be transferred to the same extent. Any such transfer
shall be effective only if the Related Option also is transferred to the same
transferee.
8. Notice of Exercise of TLSAR. This TLSAR may be exercised by
the person then entitled to do so as to any portion of the TLSAR which may then
be exercised by giving written notice of exercise to the Secretary of the
Company (or his or her designee) specifying the number of full Shares with
respect to which the TLSAR is to be exercised.
9. Payment of TLSAR Amount. Upon exercise of this TLSAR, the
Employee shall be entitled to receive payment from the Company in an amount (the
"TLSAR Amount") determined by multiplying:
(a) The amount by which the Change of Control Value (as defined below) of a
Share on the date of exercise exceeds the Exercise Price, times
(b) The number of Shares with respect to which the TLSAR is exercised.
For this purpose, the "Change of Control Value" of a Share shall mean the
greater of (i) the highest Fair Market Value of a Share during the period of 60
consecutive days which ends on the date of a Change of Control, or (ii) the
highest price per Share paid in the transaction which gives rise to the Change
of Control.
10. Form of Payment of TLSAR Amount. The TLSAR Amount shall be
paid in cash, unless the Committee determines that such payment (or portion
thereof) would cause a transaction which gives rise to the Change of Control to
be ineligible for pooling of interests accounting under APB No. 16, which
transaction (but for such payment) otherwise would have been eligible for such
accounting treatment, in which case the Committee may determine that the TLSAR
Amount shall be paid in Shares of equivalent value. Prior to any payment of the
TLSAR Amount, the Company shall deduct or withhold, or require the Employee to
remit to the Company, an amount sufficient to satisfy any withholding taxes
required to be withheld with respect to the payment.
11. No Rights of Stockholder. Neither the Employee (nor any
beneficiary) shall be or have any of the rights or privileges of a stockholder
of the Company in respect of any of the Shares issuable pursuant to the exercise
of this TLSAR, unless and until certificates representing such Shares shall have
been issued, recorded on the records of the Company or its transfer agents or
registrars, and delivered to the Employee (or beneficiary).
12. Address for Notices. Any notice to be given to the Company
under the terms of this Agreement shall be addressed to the Company, in care of
its Secretary, at 600 Montgomery Street, San Francisco, California 94111, or at
such other address as the Company may hereafter designate in writing.
13. TLSAR is Not Transferable. Except as otherwise provided in
Paragraphs 6 and 7 above, this TLSAR and the rights and privileges conferred
hereby may not be transferred, pledged, assigned or otherwise hypothecated in
any way (whether by operation of law or otherwise) and shall not be subject to
sale under execution, attachment or similar process. Upon any attempt to
transfer, pledge, assign, hypothecate or otherwise dispose of this TLSAR, or of
any right or privilege conferred hereby, or upon any attempted sale under any
execution, attachment or similar process, this TLSAR and the rights and
privileges conferred hereby immediately shall become null and void.
14. Maximum Term of TLSAR. Notwithstanding any other provision
of this Agreement except Paragraph 6 above relating to the death of the Employee
(in which case the TLSAR is exercisable to the extent set forth therein), this
TLSAR is not exercisable after the Expiration Date.
15. Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of the heirs, legatees, legal representatives,
successors and assigns of the parties hereto.
16. Conditions to Exercise. Exercise of this TLSAR will not be
permitted until arrangements (satisfactory to the Company) have been made by the
Employee for the payment of the amount of taxes required (as determined by the
Company) to be withheld by reason of such exercise.
17. Plan Governs. This Agreement is subject to all of the
terms and provisions of the Plan. In the event of a conflict between one or more
provisions of this Agreement and one or more provisions of the Plan, the
provisions of the Plan shall govern. Capitalized terms and phrases used and not
defined in this Agreement shall have the meaning set forth in the Plan.
18. Committee Authority. The Committee shall have all
discretion, power, and authority to interpret the Plan and this Agreement and to
adopt such rules for the administration, interpretation and application of the
Plan as are consistent therewith. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Employee, the Company and all other interested persons, and shall be
given the maximum deference permitted by law. No member of the Committee shall
be personally liable for any action, determination or interpretation made in
good faith with respect to the Plan or this Agreement.
19. Captions. The captions provided herein are for convenience
only and are not to serve as a basis for the interpretation or construction of
this Agreement.
20. Agreement Severable. In the event that any provision in
this Agreement shall be held invalid or unenforceable, such provision shall be
severable from, and such invalidity or unenforceability shall not be construed
to have any effect on, the remaining provisions of this Agreement.
21. Modifications to the Agreement. This Agreement constitutes
the entire understanding of the parties on the subjects covered. The Employee
expressly warrants that he or she is not executing this Agreement in reliance on
any promises, representations, or inducements other than those contained herein.
Modifications to this Agreement or the Plan can be made only in an express
written contract executed by a duly authorized officer of the Company.
EXHIBIT 12
<TABLE>
TRANSAMERICA CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Nine months ended September 30,
1998 1997
(Dollar amounts in thousands)
<S> <C> <C>
Fixed charges:
Interest and debt expense $ 312,427 $ 310,054
One-third of rental expense 26,182 25,752
Dividends declared on preferred
securities issued by affiliates 42,231 29,975
---------- ----------
Total $ 380,840 $ 365,781
========== ==========
Earnings:
Net income- continuing operations $ 430,263 $ 342,811
Provision for income taxes 229,091 94,292
Fixed charges 380,840 365,781
---------- ----------
Total $1,040,194 $ 802,884
========== ==========
Ratio of earnings to fixed charges 2.73 2.19
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 195
<SECURITIES> 1,750
<RECEIVABLES> 2,599
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,474
<DEPRECIATION> 1,573
<TOTAL-ASSETS> 55,444
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 62
<OTHER-SE> 5,167
<TOTAL-LIABILITY-AND-EQUITY> 55,444
<SALES> 0
<TOTAL-REVENUES> 4,592
<CGS> 0
<TOTAL-COSTS> 2,991
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 38
<INTEREST-EXPENSE> 312
<INCOME-PRETAX> 659
<INCOME-TAX> 229
<INCOME-CONTINUING> 430
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 430
<EPS-PRIMARY> 6.86
<EPS-DILUTED> 6.60
</TABLE>
