EXHIBIT EX-13
FINANCIAL REVIEW
Transamerica Corporation is a financial services organization which engages
through its subsidiaries in consumer lending, commercial lending, leasing,
real estate services, life insurance and asset management.
CORPORATE LIQUIDITY
Transamerica Corporation receives funds from its subsidiaries in the form of
dividends, income taxes and interest on loans. The Corporation uses these
funds to pay dividends to its shareholders, reinvest in the operations of its
subsidiaries and pay corporate interest, expenses and taxes. Reinvested funds
are allocated among subsidiaries on the basis of capital requirements and
expected returns. Reinvestment may be accomplished by allowing a subsidiary to
retain all or a portion of its earnings, or by making capital contributions or
loans.
The Corporation also borrows funds to finance acquisitions or to lend to
certain of its subsidiaries to finance their working capital needs.
Subsidiaries are required to maintain prudent financial ratios consistent with
other companies in their respective industries and retain the capacity through
committed credit lines to repay working capital loans from the Corporation. At
December 31, 1993, Transamerica and its subsidiaries had short-term
borrowings, principally commercial paper, totaling $3.7 billion, supported by
credit agreements with 60 banks. It is the policy of the Corporation to
maintain credit line coverage at least equal to 100% of short-term borrowings.
Availability under such lines at December 31, 1993, amounted to $4.1 billion
or 111% of these borrowings; credit support equal to 68% of the borrowings was
with banks rated AAA/AA or the equivalent by one or more of the major credit
rating agencies.
As discussed in the discontinued operations section on page 51, the
Corporation completed the sale of its former property and casualty insurance
subsidiary, Transamerica Insurance Group, through an initial public offering
in April 1993 and a secondary offering in December 1993. Proceeds from the
sales of stock, after underwriting discounts, totaled $1 billion. The proceeds
were used to reduce indebtedness, including $409.3 million incurred to fund
cash transactions with the property and casualty insurance operation in
connection with the initial public offering, and to commence a program of
repurchasing shares of its common stock. In May 1993 Transamerica announced
its intention to purchase up to 3.5 million of its common shares subject to
acceptable market conditions. In December the program was expanded to include
an additional 2.5 million shares. As of December 31, 1993, Transamerica had
purchased 3.6 million shares.
On January 23, 1992, the Corporation issued 400,000 shares of Series D
Preferred Stock ($100 par value, $500 liquidation preference) resulting in
proceeds of $193.2 million after underwriting discounts and issuance costs.
Dividends on these shares, which are cumulative, are at the rate of 8.5% of
the liquidation preference per annum. Proceeds from the issue were used to
fund a $100 million capital contribution to Transamerica Finance Group, a
wholly owned subsidiary of the Corporation which conducts Transamerica's
consumer lending, commercial lending and leasing operations, and to reduce
short-term indebtedness.
In August 1991, the Corporation established a new program to offer publicly,
from time to time, $200 million of its Medium-Term Notes, Series B. The notes
will be issued pursuant to a shelf registration filed in 1989 with the
Securities and Exchange Commission that enables the Corporation to offer
publicly up to $500 million of debt securities with varying terms. None of
these debt securities has been sold. The securities may be senior or
subordinated and, if subordinated, may be convertible into common stock. The
proceeds from the sale of the debt securities, including the notes, may be
used for general corporate purposes.
Transamerica Corporation and Subsidiaries 37
INVESTMENT PORTFOLIO
Transamerica Corporation, principally through its life insurance subsidiaries,
maintains an investment portfolio aggregating $21 billion at December 31,
1993, of which $19.4 billion was invested in fixed maturities. At December 31,
1993, 96.6% of the fixed maturities was rated as ``investment grade,'' with an
additional 2.8% in the BB category or its equivalent. ``Investment grade'' is
defined as any issue rated above the Ba category by Moody's Investors Service
or above the BB category by Standard & Poor's Corporation. The fixed maturity
portfolio includes $74 million of private placement securities which have been
rated by analysts employed by Transamerica Investment Services. The market
value of fixed maturities was $21 billion resulting in a net unrealized gain
position, before the effects of income taxes, of $1.6 billion at December 31,
1993. Fixed maturity investments are generally held for long-term investment
and used primarily to support insurance reserves. Delinquent below investment
grade securities before provision for impairment in value were $31.1 million
at December 31, 1993 compared to $113.4 million at December 31, 1992.
Provision for impairment in value has been made to reduce certain fixed
maturity investments by $104 million at December 31, 1993 and $136.9 million
at December 31, 1992.
Fixed maturity securities which are expected to be called by the issuer or
sold in connection with Transamerica portfolio management strategies in the
next three months are classified as investments available for sale and carried
at the lower of amortized cost or estimated market value. Based on current
interest rate projections, fixed maturity securities with an amortized cost of
$872.4 million and an estimated value of $920.2 million were identified as
being subject to call or sale in the first quarter of 1994 and accordingly
have been classified in the December 31, 1993 financial statements as
investments available for sale.
Additionally, $493 million (2% of the investment portfolio) was invested in
mortgage loans and real estate including $356.8 million in commercial mortgage
loans, $42.4 million in residential mortgage loans, $111.3 million in real
estate investments and $53.2 million in foreclosed real estate. Problem loans,
defined as restructured loans yielding less than 8% and delinquent loans,
totaled $18.5 million at December 31, 1993 and $16.7 million at December 31,
1992. Allowances for possible losses of $70.7 million at December 31, 1993 and
$70.1 million at December 31, 1992 have been established to cover the possible
losses from mortgage loans and real estate investments.
CONSOLIDATED RESULTS
Operating income from continuing operations, which excludes investment
transactions and in 1993 an extraordinary loss on early extinguishment of
debt, increased $87.4 million (26%) in 1993 compared to 1992 due primarily to
increases in life insurance, real estate services and asset management
operating results and lower unallocated interest and other expenses. Partially
offsetting these improvements were declines in commercial lending, consumer
lending, insurance brokerage and leasing operating results. Operating income
from continuing operations for 1993 also includes a $36 million after tax
writedown of repossessed rent-to-own stores in commercial lending, charges
totaling $24.7 million after tax primarily for the restructuring of the
commercial lending and real estate services operations and for the realignment
of certain corporate-wide administrative functions and an $8.4 million
additional tax provision from the revaluation of the January 1, 1993 deferred
tax liability for the effect of the federal tax rate increase. These items
were offset by a $94.2 million tax benefit from the satisfactory resolution of
prior years' tax matters which made certain tax reserves no longer necessary.
Excluding the aforementioned 1993 items, operating income from continuing
operations for 1993 increased $62.3 million (18%) compared to 1992.
38 Transamerica Corporation and Subsidiaries
In December 1993 the commercial lending operation redeemed $125 million of
deep discount, long-term debt with a book value of $90.7 million, which
resulted in a $23.1 million after tax extraordinary loss.
Investment transactions in 1993 included after tax gains of $102.2 million
realized on the sale of investments, less the required accelerated
amortization of deferred policy acquisition costs associated with
interest-sensitive products of $40.8 million after tax and loss provisions of
$36.1 million after tax for the impairment in value of investments. Investment
transactions in 1992 included after tax gains of $89.8 million realized on the
sale of investments, less accelerated amortization of deferred policy
acquisition costs associated with interest-sensitive products of $21.9 million
after tax and loss provisions of $62.8 million after tax for the impairment in
value of investments.
Operating income from continuing operations, which excludes investment
transactions and in 1991 the cumulative effect of the change in accounting for
post employment benefits other than pensions, in 1992 increased $290.7 million
compared to 1991 principally due to the return to profitability of the
commercial lending operation and improved real estate services operating
results. Life insurance, leasing and consumer lending operating results also
contributed to the improvement while unallocated interest and other expenses
decreased in 1992. These improvements were offset in part by decreased
operating results for insurance brokerage and asset management. In 1991
insurance brokerage results benefited from a gain on the sale of 59 million
shares of Sedgwick Group plc stock, which reduced Transamerica's equity
ownership from 39% to 25%.
OPERATING INCOME BY LINE OF BUSINESS
Changes in the earnings, capital requirements and liquidity of the
Corporation's consolidated operations are best understood by considering the
Corporation's separate business segments, which are shown below:
_____________________________________________________________________________
(Amounts in millions) 1993 1992 1991
FINANCE
Consumer lending $ 93.1 $101.2 $ 97.4
Commercial lending (4.0) 22.2 (217.0)
Leasing 53.6 58.1 48.0
Real estate services 84.3 73.2 30.1
Amortization of goodwill (13.0) (13.0) (13.8)
______ ______ ______
Total finance 214.0 241.7 (55.3)
INSURANCE
Life insurance 215.7 190.8 169.0
Insurance brokerage 10.2 16.1 47.3
Asset management 0.3 0.1 0.6
Amortization of goodwill (8.9) (8.9) (9.5)
______ ______ ______
Total insurance 217.3 198.1 207.4
Unallocated interest and other expenses (6.1) (102.0) (105.0)
______ ______ ______
Operating income from continuing operations 425.2 337.8 47.1
Investment transactions 25.3 5.1 (2.0)
______ ______ ______
Income from continuing operations 450.5 342.9 45.1
Income (loss) from discontinued operations (50.0) (99.7) 39.7
Extraordinary loss on early extinguishment of debt (23.1)
Cumulative effect of change in accounting for post
employment benefits other than pensions (34.7)
______ ______ ______
Net income $377.4 $243.2 $ 50.1
====== ====== ======
Transamerica Corporation and Subsidiaries 39
TRANSAMERICA FINANCE GROUP
Transamerica Finance Group comprises Transamerica's consumer lending,
commercial lending and leasing operations and provides funding for these
operations. Transamerica Finance Group's total notes and loans payable were $7
billion at December 31, 1993 and $6.6 billion at December 31, 1992. Variable
rate debt was $4 billion at December 31, 1993 compared to $3.5 billion at the
end of 1992. The ratio of debt to debt plus equity was 82.2% at December 31,
1993 and 81.4% at December 31, 1992.
Transamerica Finance Group, through its wholly owned subsidiary Transamerica
Finance Corporation, offers publicly, from time to time, senior or
subordinated debt securities. Public debt issued totaled $407 million in 1993,
$538.7 million in 1992 and $1.1 billion in 1991. Under a shelf registration
filed with the Securities and Exchange Commission in 1991 to offer publicly up
to $1.5 billion of senior or subordinated debt securities with varying terms,
debt securities totaling $1.4 billion had been sold through December 31, 1993.
In addition, under a registration statement filed in July 1993, a medium-term
note program was also established for $2 billion, of which $1.9 billion
remained unsold as of December 31, 1993.
During 1990 Transamerica Finance Group securitized $430 million of residential
real estate secured consumer finance receivables and entered into a 5-year
arrangement in which it securitized a $375 million participation interest in a
pool of its insurance finance receivables. These securitizations, which have
been accounted for as sales, allowed Transamerica Finance Group to improve its
capital management and liquidity. At December 31, 1993, $375 million of
securitized insurance finance receivables and $59.4 million of securitized
real estate secured consumer finance receivables remained outstanding. The
consumer and commercial lending operations continue to service these
portfolios and remain partially at risk through limited recourse provisions.
Proceeds from these transactions were used primarily to reduce debt.
Liquidity is a characteristic of these operations since the majority of the
assets consist of finance receivables. Principal cash collections of finance
receivables totaled $13.4 billion during 1993, $11.1 billion during 1992 and
$10 billion during 1991.
Page 40 Transamerica Corporation and Subsidiaries
TRANSAMERICA FINANCE GROUP
______________________________________________________________________________
(Amounts in millions) 1993 1992 1991
ASSETS
Finance receivables less unearned fees
and allowance for losses:
Consumer $3,622 $3,558 $3,429
Commercial 2,860 2,785 2,769
______ ______ ______
6,482 6,343 6,198
Equipment held for lease 1,306 1,062 995
Goodwill 420 433 447
Assets held for sale 227 282 232
Other assets 722 712 815
______ ______ ______
$9,157 $8,832 $8,687
====== ====== ======
LIABILITIES AND EQUITY
Notes and loans payable $7,032 $6,590 $6,548
Other liabilities 599 739 704
Equity 1,526 1,503 1,435
______ ______ ______
$9,157 $8,832 $8,687
====== ====== ======
REVENUES $1,433 $1,473 $1,446
EXPENSES
Operating expenses 630 617 593
Interest 415 459 514
Provision for losses on receivables
and assets held for sale 147 91 432
Income taxes (benefit) 99 126 (21)
______ ______ ______
1,291 1,293 1,518
______ ______ ______
Income (loss) from operations 142 180 (72)
Amortization of goodwill (13) (13) (14)
Extraordinary loss on early extinguishment of debt (23)
Cumulative effect of change in accounting for post
employment benefits other than pensions (11)
______ ______ ______
Net income (loss) $ 106 $ 167 $ (97)
====== ====== ======
SOURCE OF CASH
Cash provided by operations $ 458 $ 344 $ 297
Proceeds from debt financing 5,501 4,100 4,494
Sale of trailer business 191
Other (53) 49 28
______ ______ ______
$5,906 $4,684 $4,819
====== ====== ======
APPLICATION OF CASH
Additions to equipment held for lease $ 405 $ 335 $ 198
Payments of notes and loans 5,112 4,108 4,235
Increase in finance receivables 289 266 368
Equity transactions 100 (25) 18
______ ______ ______
$5,906 $4,684 $4,819
====== ====== ======
Transamerica Corporation and Subsidiaries 41
CONSUMER LENDING
Consumer lending income from operations in 1993 decreased $8.1 million (8%)
from 1992. The decrease was principally due to increased operating expenses,
an increased provision for losses on receivables and lower revenues that more
than offset lower interest expense and a $5.3 million benefit included in
operating expenses from the reversal of reserves related to the 1990
securitization and sale of receivables. Revenues in 1993 decreased $5.8
million (1%) from 1992 principally because of lower servicing and other fees
on securitized receivables as a result of the runoff of the securitized
receivables and lower fees due to reduced volume of real estate secured loans.
Operating expenses increased in 1993 mainly due to investments in new branches
and losses on the disposal of repossessed assets. With the adoption in the
fourth quarter of 1992 of a required new accounting rule, losses on the
disposal of repossessed assets, which were $6 million for 1993 and $3 million
in the fourth quarter of 1992, were classified as operating expenses rather
than as credit losses. Data for periods prior to the fourth quarter of 1992
have not been reclassified.
The provision for losses on receivables increased $15 million (31%) in 1993
over 1992 due to increased credit losses. Credit losses, net of recoveries, as
a percentage of average consumer finance receivables outstanding, net of
unearned finance charges and insurance premiums, were 1.68% in 1993 compared
to 1.21% in 1992. Credit losses increased partly due to continued sluggishness
in the domestic economy and a weak California real estate market.
Interest expense declined $24.4 million (9%) in 1993 from 1992 due to a lower
average interest rate which more than offset the effect of higher borrowings
due to increased average receivables outstanding.
Consumer lending income from operations in 1992 increased $3.8 million (4%)
over 1991 principally due to an increase in consumer finance receivables
resulting from growth in the company's loan portfolio. Revenues in 1992
increased $27.7 million (4%) over 1991 principally because of higher average
receivables outstanding. Expenses increased in 1992 mainly due to increased
operating costs, primarily attributable to branch network expansion and a
higher level of receivables, and an increase in the provision for losses on
receivables offset in part by a reduction in interest expense. The provision
for losses on receivables increased due to higher credit losses sustained.
Credit losses, net of recoveries, as a percentage of average net consumer
finance receivables outstanding, were 1.21% for 1992 compared to 0.98% in
1991. Credit losses increased in 1992 due to sluggishness in the domestic
economy and a weak California real estate market. Interest expense declined in
1992 due to a lower average interest rate which more than offset the effect of
higher average borrowings resulting from the higher level of receivables.
Net consumer finance receivables increased $66.2 million (2%) in 1993 and $132
million (4%) in 1992.
Net consumer finance receivables at December 31, 1993 included $3.1 billion of
real estate secured loans, principally first and second mortgages secured by
residential properties, of which approximately 50% are located in California.
Company policy generally limits the amount of cash advanced
42 Transamerica Corporation and Subsidiaries
on any one loan, plus any existing mortgage, to between 70% and 80% (depending
on location) of the appraised value of the mortgaged property, as determined by
qualified independent appraisers at the time of loan origination. Delinquent
real estate secured loans, which are defined as loans contractually past due 60
days or more, totaled $61.8 million (1.87% of total real estate secured loans
outstanding) at December 31, 1993 compared to $62.1 million (1.85% of total
real estate secured loans outstanding) at December 31, 1992.
Management has established an allowance for losses equal to 2.83% of net
consumer finance receivables outstanding at December 31, 1993 and 1992.
Generally, by the time an account secured by residential real estate becomes
past due 90 days, foreclosure proceedings have begun, at which time the
account is moved from finance receivables to other assets and is written down
to the estimated realizable value of the collateral if less than the account
balance. After foreclosure, repossessed assets are carried at the lower of
cost or fair value less estimated selling costs. Accounts in foreclosure and
repossessed assets held for sale totaled $214.7 million at December 31, 1993
compared to $176.1 million at December 31, 1992. The increase primarily
reflects increased repossessions in California and longer disposal times due
to its weak real estate market.
CONSUMER LENDING
_____________________________________________________________________________
(Amounts in millions) 1993 1992 1991
REVENUES
Finance charges and related income $ 654 $ 660 $ 632
EXPENSES
Interest 242 267 276
Operating expenses 189 172 153
Provision for losses on receivables 64 49 42
Income taxes 66 71 63
______ ______ ______
561 559 534
______ ______ ______
Income from operations 93 101 98
Amortization of goodwill (1)
Cumulative effect of change in accounting for
post employment benefits other than pensions (6)
______ ______ ______
Net income $ 93 $ 101 $ 91
====== ====== ======
ASSETS $3,946 $3,876 $3,675
====== ====== ======
Transamerica Corporation and Subsidiaries 43
COMMERCIAL LENDING
Commercial lending results, before the amortization of goodwill and a $23.1
million after tax extraordinary loss on the early extinguishment of $125
million deep discount long-term debt in 1993, were a loss of $4 million for
1993 compared to income in 1992 of $22.2 million. The 1993 loss was due
primarily to the inclusion of a $50 million ($36 million after tax) provision
to reduce the net carrying value of repossessed rent-to-own stores to their
estimated realizable value. Information received during the year from
prospective buyers of the repossessed rent-to-own stores held for sale
indicated that the realizable value of the business had declined below its
carrying value.
The 1993 results also included an $8.8 million after tax charge for the
restructuring of the commercial lending unit's infrastructure, a $4.2 million
after tax provision for anticipated legal and other costs associated with the
runoff of the liquidating portfolios and a $4.2 million tax benefit from the
resolution of prior years' tax matters. Excluding the aforementioned items,
commercial lending income, before the amortization of goodwill and the
extraordinary loss on the early extinguishment of debt, increased $18.6
million (83%) in 1993 over 1992. This improvement was primarily due to lower
operating expenses, a lower provision for losses on receivables and stronger
margins brought about by the declining interest rate environment. The interest
rates at which commercial lending borrows funds for its businesses have moved
more quickly than the rates at which it lends to its customers. As a result,
margins have been enhanced by the declining interest rate environment.
Commercial lending results, before the amortization of goodwill, were income
of $22.2 million compared to a loss of $217 million in 1991. The return to
profitability was principally due to lower provisions for losses on
receivables and assets held for sale. Results for 1991 included a special
pretax charge of $200.2 million ($130 million after tax) resulting from a
decision to exit the rent-to-own finance business, reduce lending to certain
asset based lending lines, accelerate disposal of repossessed assets and
liquidate receivables remaining from previously sold businesses.
Revenues decreased $22.1 million (6%) in 1993 and $25.6 million (6%) in 1992
primarily as a result of reduced yields attributable to the current low
interest rate environment.
Interest expense declined $25.5 million (19%) in 1993 and $48.1 million (26%)
in 1992 as a result of lower average interest rates. Operating expenses
increased $11.2 million (6%) during 1993 over 1992 due to the restructuring
charge and provision for anticipated legal and other costs associated with the
runoff of the liquidating portfolios described above, aggregating $21.5
million, partially offset by cost reduction efforts in the inventory finance,
business credit and insurance finance core businesses. The provision for
losses on receivables in 1993 was $8.7 million (21%) less than in 1992
primarily due to lower credit losses. Credit losses, net of recoveries, as a
percentage of average commercial finance receivables outstanding, net of
unearned finance charges, were 1.49% in 1993, 4.18% in 1992 and 5.82% in 1991.
Credit losses declined in 1993 primarily due to lower losses in the
liquidating portfolios. The commercial lending operation experienced
substantial credit losses in 1991 primarily due to severe financial problems
experienced by the company's customers resulting from the weak U.S. and
Canadian economies.
In March 1992, Transamerica's commercial lending operation purchased for cash
a business credit portfolio consisting of twelve manufacturer/distributor
accounts with a net outstanding balance of $134 million. In September 1991, the
operation purchased for cash an inventory financing portfolio, consisting of
lending arrangements with over 700 manufactured housing and recreational
product dealers with a net balance outstanding of $290.6 million. These
transactions were funded with short-term debt.
Net commercial finance receivables outstanding increased $64.9 million (2%) in
1993 and decreased $65.4 million (2%) in 1992. Both years experienced growth
in the inventory finance and insurance finance portfolios and declines in the
liquidating portfolios. Management has established an allowance for credit
losses equal to 2.71% of net commercial finance receivables outstanding as of
December 31, 1993 compared to 3.14% at December 31, 1992.
44 Transamerica Corporation and Subsidiaries
Effective in 1993, the policies used for the determination of delinquent and
nonearning receivables have been revised to provide greater consistency among
the company's receivable portfolios. It is management's view that the new
methodology provides a better and more meaningful assessment of the condition
of the portfolio. Delinquent receivables, which were generally defined as
financed inventory sold but unpaid 30 days or more, the portion of business
credit loans in excess of the approved lending limit and all other receivable
balances contractually past due 60 days or more, are now defined as the
instalment balance for inventory finance and business credit receivables and
the receivable balance for all other receivables over 60 days past due.
Nonearning receivables, which were defined as receivables from borrowers in
bankruptcy or litigation and other accounts for which full collectibility was
doubtful, are now defined as receivables from borrowers that are over 90 days
delinquent or at such earlier time as full collectibility becomes doubtful. At
December 31, 1993, delinquent receivables were $28.9 million (0.96% of
receivables outstanding) and nonearning receivables were $33.6 million (1.12%
of receivables outstanding). At December 31, 1992, delinquent receivables were
$65 million (2.21% of receivables outstanding) and nonearning receivables were
$92.5 million (3.14% of receivables outstanding). Delinquency and nonearning
data as of December 31, 1992 has not been restated.
Assets held for sale as of December 31, 1993 totaled $90.1 million, net of a
$157 million valuation allowance, and consisted of rent-to-own finance
receivables of $120.5 million, repossessed rent-to-own stores of $107.2
million and other repossessed assets of $19.4 million. Assets held for sale at
December 31, 1992 totaled $191.5 million, net of a $121.5 million valuation
allowance, and comprised rent-to-own finance receivables of $179 million,
repossessed rent-to-own stores of $103.4 million and other repossessed assets
of $30.6 million. At December 31, 1993, $27.5 million of the rent-to-own
finance receivables were classified as both delinquent and nonearning. At
December 31, 1992, delinquent rent-to-own finance receivables were $15.4
million and nonearning rent-to-own finance receivables were $32.6 million.
Delinquency and nonearning data as of December 31, 1992 has not been restated.
COMMERCIAL LENDING
_____________________________________________________________________________
(Amounts in millions) 1993 1992 1991
REVENUES
Finance charges and related income $ 371 $ 393 $ 418
EXPENSES
Interest 109 135 183
Operating expenses 186 174 174
Provision for losses on receivables 33 42 248
Provision for losses on assets held for sale 50 141
Income taxes (benefit) (3) 20 (111)
______ ______ ______
375 371 635
______ ______ ______
Income (loss) from operations (4) 22 (217)
Amortization of goodwill (11) (11) (11)
Extraordinary loss from early extinguishment of
debt (23)
Cumulative effect of change in accounting for
post employment benefits other than pensions (3)
______ ______ ______
Net income (loss) $ (38) $ 11 $ (231)
====== ====== ======
ASSETS $3,508 $3,626 $3,780
====== ====== ======
Transamerica Corporation and Subsidiaries 45
LEASING
Income from operations decreased $4.5 million (8%) in 1993 and increased $10.1
million (21%) in 1992. The 1993 decrease was due primarily to an additional
income tax provision of $4.3 million caused by the revaluation of deferred
income tax liability for the 1993 federal tax rate increase. Excluding the
additional tax provision, results for 1993 were comparable to 1992 as higher
fleet utilization and per diem rates in the rail trailer business, a larger
finance lease portfolio and a larger fleet of refrigerated containers were
offset by a decline in standard container utilization. The 1992 increase was
principally due to higher fleet utilization and per diem rates in the rail
trailer business.
Revenues for 1993 decreased $12.7 million (3%) from 1992. The decline was
mainly due to the sale of the domestic over-the-road trailer business in
November 1992 and a decline in standard container utilization. The decrease
was partially offset by higher fleet utilization and per diem rates in the
rail trailer business, an increased finance lease portfolio, and a larger
fleet of standard containers, refrigerated containers and European trailers.
In November 1992, the company sold its domestic over-the-road trailer
business. Proceeds from the sale totaled $191 million and resulted in no gain
or loss.
Revenues increased $24.1 million (6%) in 1992 primarily due to higher fleet
utilization and per diem rates in the rail trailer business, a larger fleet of
refrigerated containers, and a larger fleet and higher per diem rates in the
standard container line, offset in part by lower standard container
utilization and decreased revenues as a result of the sale of the company's
remaining common carrier operations in July 1991.
Expenses decreased $12.1 million (4%) in 1993 from 1992 due to the sale of the
domestic over-the-road trailer business. The decrease was partially offset by
higher ownership costs due to a larger fleet.
Expenses increased $6.1 million (2%) in 1992 over 1991 mainly due to higher
depreciation expenses because of a larger fleet of standard and refrigerated
containers, and higher repair, storage and positioning expenses resulting from
lower utilization in the standard container business, partially offset by
lower operating expenses resulting from the sale of the common carrier
operations.
The combined utilization of standard containers, refrigerated containers,
domestic containers, tank containers and chassis averaged 83% in 1993, 85% in
1992 and 89% in 1991. Rail trailer utilization was 91% in 1993, 84% in 1992
and 75% in 1991. European trailer utilization was 89% in 1993, 84% in 1992 and
83% in 1991.
The company's standard container, refrigerated container, domestic container,
tank container and chassis fleet of 316,000 units increased by 36,000 units
(13%) in 1993, 24,900 units (10%) in 1992 and 10,700 units (4%) in 1991. The
rail trailer fleet of 36,500 units increased by 2,100 units (6%) in 1993, and
decreased by 2,400 units (7%) in 1992 and 3,700 units (9%) in 1991. The
company also operates a fleet of 3,800 over-the-road trailers in Europe.
LEASING
_____________________________________________________________________________
(Amounts in millions) 1993 1992 1991
REVENUES
Leasing revenues $ 408 $ 420 $ 396
EXPENSES
Operating expenses 82 96 103
Depreciation on equipment held for lease 102 99 91
Selling and administrative expenses 66 74 71
Interest 64 57 55
Income taxes 40 36 28
______ ______ ______
354 362 348
______ ______ ______
Income from operations 54 58 48
Amortization of goodwill (2) (2) (2)
Cumulative effect of change in accounting for
post employment benefits other than pensions (2)
______ ______ ______
Net income $ 52 $ 56 $ 44
====== ====== ======
ASSETS $1,697 $1,340 $1,258
====== ====== ======
46 Transamerica Corporation and Subsidiaries
REAL ESTATE SERVICES
Real estate services comprise Transamerica's real estate tax, property
management and other services.
Income from the real estate services' operations increased $11.1 million (15%)
in 1993 and $43.1 million (143%) in 1992, due principally to increased
revenues from continued high levels of mortgage loan refinancings resulting
from lower mortgage interest rates. The 1993 increase was offset in part by a
$3.7 million after tax provision for restructuring of certain functions.
Funds required for capital expenditures and working capital are generated by
operations. Cash, cash equivalents and accounts receivable, which totaled
$115.6 million at December 31, 1993 and $81.3 million at December 31, 1992 are
the real estate services' principal sources of liquidity.
REAL ESTATE SERVICES
_____________________________________________________________________________
(Amounts in millions) 1993 1992 1991
ASSETS
Cash, cash equivalents and accounts receivable $116 $ 81 $ 54
Investments 64 59 52
Land and buildings 166 156 130
Other assets 103 60 47
____ ____ ____
$449 $356 $283
==== ==== ====
LIABILITIES AND EQUITY
Loss and future service reserves $105 $ 68 $ 54
Notes and loans payable 97 82 78
Other liabilities 63 68 52
Equity 184 138 99
____ ____ ____
$449 $356 $283
==== ==== ====
REVENUES
Real estate services revenues $324 $269 $190
EXPENSES
Salaries and employee benefits 82 71 61
Other operating expenses 105 81 83
Income taxes 53 44 16
____ ____ ____
240 196 160
____ ____ ____
Income from operations 84 73 30
Cumulative effect of change in accounting for
post employment benefits other than pensions (2)
____ ____ ____
Net income $ 84 $ 73 $ 28
==== ==== ====
SOURCE OF CASH
Cash provided by operations $ 68 $ 76 $ 44
Proceeds from debt financing 13 16
____ ____ ____
$ 81 $ 92 $ 44
==== ==== ====
APPLICATION OF CASH
Equity transactions $ 55 $ 50 $ 19
Net purchases of investments 9 9
Payments of notes and loans 2 20 5
Other 24 13 11
____ ____ ____
$ 81 $ 92 $ 44
==== ==== ====
Transamerica Corporation and Subsidiaries 47
LIFE INSURANCE
Operating income from life insurance operations, which excludes investment
transactions, increased $24.9 million (13%) in 1993 and $21.8 million (13%) in
1992. The life insurance, structured settlements, living benefits, group
pension and reinsurance lines all experienced increases in earnings before
investment transactions, resulting primarily from increased charges on a
larger base of interest-sensitive policies, maintained investment spreads on a
larger base of assets and control of ongoing operating expenses.
In 1993, the structured settlements line, based on the determination that its
products had insignificant mortality risk, adopted Financial Accounting
Standards Board Statement No. 97 on accounting for interest-sensitive life
insurance products. Prior year financial statements have been reclassified
which reduced premium income and life insurance expenses by an equal amount.
This change in accounting reduced operating income by $11.9 million after tax
and net income by $39 million after tax due to the accelerated amortization of
deferred policy acquisition costs associated with investment income and gains
from investments called or sold.
Net income included after tax gains from investment transactions of $29.2
million in 1993, $5.1 million in 1992 and $600,000 in 1991.
Premiums and related income increased $73.3 million (6%) in 1993 and $180.5
million (18%) in 1992 primarily due to increased life insurance premiums and
charges on interest-sensitive policies attributable to a larger base of
insurance policies in force and an increase in reinsurance assumed.
Investment income increased $148.1 million (9%) in 1993 and $69.6 million (5%)
in 1992 due primarily to increased investments. Investment income includes
$55.7 million in 1993 and $9.4 million in 1992 related to the accelerated
amortization of discounts on securities called or expected to be called.
Investment income for 1992 also included a $10 million addition to investment
income to reflect actual prepayment experience on certain mortgage-backed
securities investments. Investment income for 1993 also included a $4.7
million charge related to the reversal of accrued investment income on
defaulted securities. The after tax yield on the investment portfolio was
5.74% in 1993, 5.98% in 1992 and 6.24% in 1991.
Life insurance benefits and expenses increased $168.5 million (7%) in 1993 and
$222.3 million (10%) in 1992 principally due to increases in benefits paid or
provided attributable to the larger base of life insurance and annuities in
force, higher commission expense on increased life insurance and annuity
sales, and higher amortization of deferred policy acquisition costs (exclusive
of accelerated amortization related to investment gains). Other expenses
include charges of $19.8 million in 1993 and $9.2 million in 1992 primarily
attributable to a provision for the realignment and relocation of certain back
office support functions and in 1993 anticipated guaranty fund assessments and
the establishment of an allowance for possible loss related to the 1991 sale
of a business unit.
Cash provided by operations for 1993 was $604.3 million which was $26.1
million (4%) below the 1992 amount primarily resulting from higher income
taxes paid during 1993 and timing of settlements of certain receivables. The
company continues to maintain a sufficiently liquid portfolio to cover its
operating requirements, with remaining funds being invested in longer term
securities.
48 Transamerica Corporation and Subsidiaries
LIFE INSURANCE
_____________________________________________________________________________
(Amounts in millions) 1993 1992 1991
ASSETS
Investments $20,891 $18,205 $16,691
Deferred policy acquisition costs 1,929 1,812 1,691
Other assets 3,289 2,722 2,387
_______ _______ _______
$26,109 $22,739 $20,769
======= ======= =======
LIABILITIES AND EQUITY
Policy reserves and related items $21,952 $19,255 $17,459
Other liabilities 2,091 1,700 1,686
Equity 2,066 1,784 1,624
_______ _______ _______
$26,109 $22,739 $20,769
======= ======= =======
REVENUES
Premiums and related income $ 1,256 $ 1,183 $ 1,002
Investment income, net of expenses 1,726 1,578 1,508
Gain on investment transactions 45 7 1
_______ _______ _______
3,027 2,768 2,511
EXPENSES
Policyholder benefits 2,146 2,059 1,892
Commissions and other expenses 500 418 363
Income taxes 136 95 86
_______ _______ _______
2,782 2,572 2,341
_______ _______ _______
Income from operations 245 196 170
Cumulative effect of change in accounting for
post employment benefits other than pensions (12)
_______ _______ _______
Net income $ 245 $ 196 $ 158
======= ======= =======
SOURCE OF CASH
Cash provided by operations $ 604 $ 630 $ 639
Net receipts from interest-sensitive policies 1,853 884 677
_______ _______ _______
$ 2,457 $ 1,514 $ 1,316
======= ======= =======
APPLICATION OF CASH
Net purchases of investments $ 2,434 $ 1,424 $ 1,344
Equity transactions 19 22
Other 4 68 (28)
_______ _______ _______
$ 2,457 $ 1,514 $ 1,316
======= ======= =======
Transamerica Corporation and Subsidiaries 49
INSURANCE BROKERAGE
Income from insurance brokerage operations comprises Transamerica's equity
interest in Sedgwick Group plc's income, less a provision for income taxes and
the amortization of goodwill. In 1993 income, before the amortization of
goodwill, decreased $5.9 million (37%). Transamerica's equity interest was
reduced from 25% to 21% during 1993 due to a rights offering by Sedgwick which
resulted in a $2.6 million after tax loss to Transamerica. In addition, based
on figures reported by Sedgwick and included in Transamerica's results on a
one quarter lag, Transamerica's equity interest in Sedgwick's operating
results, before the amortization of goodwill, decreased $3.3 million below
1992 due primarily to lower operating profits reported by Sedgwick.
Operating income, before the amortization of goodwill, decreased $31.2 million
(66%) in 1992 principally because 1991 results included a $32.6 million after
tax gain from the sale by the Corporation of 59 million shares of Sedgwick
stock which reduced Transamerica's equity interest from 39% to 25%.
Goodwill amortization related to insurance brokerage operations amounted to
$7.2 million in 1993, $7.2 million in 1992 and $7.8 million in 1991.
ASSET MANAGEMENT
Income from asset management operations, before the amortization of goodwill,
increased $200,000 from 1992 primarily due to higher revenues from increased
assets under management which more than offset a $1 million after tax
provision for vacant office space. The principal business of the asset
management operations is the marketing and investment management of mutual
funds and serving as investment advisor to public and private retirement
funds. At December 31, 1993 the private account business had $10.6 billion and
the mutual fund business had $3.1 billion under management. Goodwill
amortization related to asset management operations was $1.7 million in 1993,
1992 and 1991.
UNALLOCATED INTEREST AND OTHER EXPENSES
Unallocated costs, after related income taxes, are summarized as follows:
____________________________________________________________________________
(Amounts in millions) 1993 1992 1991
Interest expense $54.1 $ 61.5 $ 66.1
Other expenses (income) (48.0) 40.5 38.9
_____ ______ ______
$ 6.1 $102.0 $105.0
===== ====== ======
Interest expense, after related income taxes, decreased $7.4 million (12%) in
1993 and $4.6 million (7%) in 1992 due to a lower level of borrowings and
lower interest rates. The lower borrowing level in 1993 was primarily due to
the repayment of debt with proceeds from the sale of the discontinued property
and casualty insurance operation. Other expenses, after related income taxes,
in 1993 includes a tax benefit of $90 million from the reduction of tax
reserves principally for the resolution of prior years' tax matters.
Excluding the tax benefits of $90 million for the reversal of tax reserves,
other expenses, after related income taxes, for 1993 increased $1.5 million
(4%) compared to 1992. The increase was principally due to a $4 million after
tax provision for restructuring corporate-wide administrative functions, a $3
million additional after tax provision to increase the supplemental
(nonqualified) pension liability to reflect the shift toward lump sum
distributions which are calculated at the lower Pension Benefit Guaranty
Corporation interest rate, and an increase in advertising expenses, offset in
part by lower self insurance costs.
Other expenses, after related income taxes, increased $1.6 million (4%) in
1992 due primarily to higher self insurance and advertising expenses, offset
in part by adjustments in taxes allocated to the Corporation in accordance
with its usual procedures for allocating current consolidated income taxes.
50 Transamerica Corporation and Subsidiaries
DISCONTINUED OPERATIONS
On July 20, 1992, Transamerica Corporation announced that its Board of
Directors approved a plan to withdraw from the property and casualty insurance
business. Transamerica Corporation sold 73% of TIG Holdings, Inc., a new
company which acquired Transamerica's former property and casualty insurance
subsidiary through an initial public offering in April 1993 and the balance in
a secondary public offering in December 1993. The net proceeds, after
underwriting discounts, totaled $1 billion in cash from the two offerings,
resulting in a $125 million after tax loss on the sale, of which $75 million
was recorded in 1992 on an estimated basis and $50 million in 1993 upon the
sale in the secondary offering of the remaining interest in TIG Holdings, Inc.
See Note N, Discontinued Operations, of the financial statements on page 68 of
this annual report for a discussion of Transamerica's remaining obligations
from the withdrawal from the property and casualty insurance business.
Results from discontinued operations for 1992 were a loss of $99.7 million.
This loss comprises the $75 million after tax provision for the estimated loss
from the ultimate disposition and a $24.7 million after tax loss from
operations incurred in the first half of 1992, which represents 1992 property
and casualty results prior to the date of adoption of the plan to withdraw
from the property and casualty insurance business.
NEW ACCOUNTING STANDARDS
See Note A, Significant Accounting Policies, on pages 57 and 58 of this annual
report for a discussion of the potential impact of new accounting standards
Transamerica will adopt in 1994 and 1995.
SUBSEQUENT EVENT
On February 13, 1994, Transamerica entered into an Asset Purchase Agreement to
purchase all the assets of the container division of Tiphook plc for up to
$1.1 billion in cash. Completion of the acquisition is subject to approval by
Tiphook's shareholders and successful completion of a consent solicitation and
bond tender by Tiphook.
Transamerica Corporation and Subsidiaries 51
CONSOLIDATED BALANCE SHEET
______________________________________________________________________________
December 31 1993 1992
ASSETS
Investments, principally of life insurance subsidiaries:
Fixed maturities--held for investment $18,553.0 $16,111.1
Fixed maturities--available for sale 872.4 759.4
Mortgage loans and real estate 493.0 577.7
Equity securities 466.1 342.0
Loans to life insurance policyholders 396.5 370.5
Short-term investments 190.8 133.3
_________ _________
20,971.8 18,294.0
Finance receivables, of which $3,023.9 in 1993
and $2,806.4 in 1992 matures within one year 6,908.5 6,786.6
Less unearned fees ($240.8 in 1993 and $250 in
1992) and allowance for losses 426.0 443.9
_________ _________
6,482.5 6,342.7
Cash and cash equivalents 92.7 22.0
Trade and other accounts receivable 2,015.4 1,771.9
Net assets of discontinued operations 1,103.9
Property and equipment, less accumulated depreciation
of $831.6 in 1993 and $748.7 in 1992:
Land, buildings and equipment 345.7 325.4
Equipment held for lease 1,306.5 1,062.1
Deferred policy acquisition costs 1,929.3 1,812.0
Separate accounts administered by life insurance
subsidiaries 1,366.5 984.4
Investment in Sedgwick Group plc 310.2 298.3
Goodwill, less accumulated amortization of $113.4
in 1993 and $100.2 in 1992 495.4 510.8
Other assets 734.5 763.4
_________ _________
$36,050.5 $33,290.9
========= =========
(Amounts in millions except for share data)
See notes to financial statements
52 Transamerica Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET (CONTINUED)
______________________________________________________________________________
December 31 1993 1992
LIABILITIES AND SHAREHOLDERS' EQUITY
Life insurance policy liabilities $21,951.8 $19,255.3
Notes and loans payable, principally of finance
subsidiaries, of which $2,023 in 1993 and
$1,062.6 in 1992 matures within one year 7,704.0 7,573.1
Accounts payable and other liabilities 1,352.4 1,547.0
Income taxes, of which $301.4 in 1993 and $354.1
in 1992 is deferred 312.3 631.0
Separate account liabilities 1,366.5 984.4
Shareholders' equity:
Preferred stock ($100 par value):
Authorized--1,200,000 shares; issuable in series,
cumulative
Outstanding--Dutch Auction Rate Transferable
Securities, 2,250 shares, at liquidation
preference of $100,000 per share 225.0 225.0
Outstanding--Series D, 400,000 shares, at
liquidation preference of $500 per share,
cumulative dividend rate of 8.5% 200.0 200.0
Common stock ($1 par value):
Authorized--150,000,000 shares
Outstanding--76,398,888 shares in 1993 and
79,170,880 shares in 1992, after deducting
3,339,574 shares in treasury in 1993 76.4 79.2
Additional paid-in capital 475.2 646.5
Retained earnings 2,297.9 2,100.2
Net unrealized gain on marketable equity securities 124.1 83.5
Foreign currency translation adjustments (35.1) (34.3)
_________ _________
3,363.5 3,300.1
_________ _________
$36,050.5 $33,290.9
========= =========
Transamerica Corporation and Subsidiaries 53
CONSOLIDATED STATEMENT OF INCOME
_____________________________________________________________________________
Year ended December 31 1993 1992 1991
REVENUES
Life insurance premiums and related income $1,255.7 $1,182.3 $1,001.8
Investment income 1,749.9 1,600.0 1,529.9
Finance charges and other fees 990.1 1,013.9 1,040.7
Leasing revenues 388.3 402.2 381.4
Real estate and tax service revenues 293.3 249.6 168.2
Gain (loss) on investment transactions 39.0 7.7 (2.9)
Insurance brokerage 19.7 29.2 80.9
Other 97.0 95.2 56.1
________ ________ ________
4,833.0 4,580.1 4,256.1
EXPENSES
Life insurance benefits 2,145.9 2,059.2 1,892.3
Life insurance underwriting, acquisition
and other expenses 499.8 418.0 362.6
Leasing operating and maintenance costs 184.4 198.0 197.3
Interest and debt expense 511.6 568.9 631.1
Provision for losses on receivables
and assets held for sale 147.0 90.7 431.9
Other, including administrative and
general expenses 743.7 684.9 629.6
________ ________ ________
4,232.4 4,019.7 4,144.8
________ ________ ________
600.6 560.4 111.3
Income taxes 150.1 217.5 66.2
________ ________ ________
Income from continuing operations 450.5 342.9 45.1
Income (loss) from discontinued operations (50.0) (99.7) 39.7
Extraordinary loss on early extinguishment
of debt (23.1)
Cumulative effect of change in accounting for
post employment benefits other than pensions (34.7)
________ ________ ________
Net income $ 377.4 $ 243.2 $ 50.1
======== ======== ========
EARNINGS PER SHARE OF COMMON STOCK
Income from continuing operations $ 5.44 $ 4.11 $ 0.43
Income (loss) from discontinued operations (0.64) (1.28) 0.52
Extraordinary loss on early extinguishment
of debt (0.29)
Cumulative effect of change in accounting for
post employment benefits other than pensions (0.45)
________ ________ ________
Net income $ 4.51 $ 2.83 $ 0.50
======== ======== ========
(Amounts in millions except for share data)
See notes to financial statements
54 Transamerica Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
_____________________________________________________________________________
Year ended December 31 1993 1992 1991
OPERATING ACTIVITIES
Income from continuing operations $ 450.5 $ 342.9 $ 45.1
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 927.3 912.5 829.6
Amortization of policy acquisition
costs 232.7 135.3 172.1
Policy acquisition costs deferred (350.0) (256.3) (226.8)
Depreciation and amortization 167.1 158.0 147.9
Other (328.1) (273.2) 71.5
_________ _________ _________
Net cash provided by continuing operations 1,099.5 1,019.2 1,039.4
INVESTING ACTIVITIES
Finance receivables originated (13,664.0) (11,388.0) (10,330.0)
Finance receivables collected 13,375.2 11,121.9 9,962.0
Purchase of investments (12,102.5) (6,527.2) (9,236.0)
Sales and maturities of investments 9,647.5 5,090.7 7,850.2
Proceeds from public offering of
discontinued operations 1,031.8
Cash transactions with discontinued
operations (409.3) 27.0 20.0
Other (475.5) (157.0) 7.1
_________ _________ _________
Net cash used by investing activities (2,596.8) (1,832.6) (1,726.7)
FINANCING ACTIVITIES
Proceeds from debt financing 5,308.2 4,100.9 4,563.2
Proceeds from sale of preferred stock 193.2
Payments of notes and loans (5,239.5) (4,276.4) (4,402.0)
Receipts from interest-sensitive policies
credited to policyholder account balances 4,166.3 2,572.0 1,977.7
Return of policyholder balances on
interest-sensitive policies (2,313.2) (1,688.5) (1,300.6)
Common stock transactions (174.1) 70.3 27.3
Dividends (179.7) (178.6) (164.0)
_________ _________ _________
Net cash provided by financing
activities 1,568.0 792.9 701.6
_________ _________ _________
Increase (decrease) in cash and
cash equivalents 70.7 (20.5) 14.3
Cash and cash equivalents at beginning
of year 22.0 42.5 28.2
_________ _________ _________
Cash and cash equivalents at end of year $ 92.7 $ 22.0 $ 42.5
========= ========= =========
(Amounts in millions except for share data)
See notes to financial statements
Transamerica Corporation and Subsidiaries 55
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
__________________________________________________________________________________________________________
Net Unrealized Foreign
Additional Gain on Market- Currency
Preferred Common Paid-in Retained able Equity Translation
Stock Stock Capital Earnings Securities Adjustments
BALANCE AT JANUARY 1, 1991 $225.0 $76.4 $558.5 $2,149.5 $ 2.4 $ 4.9
Net income 50.1
Dividends declared:
On common stock (152.0)
On preferred stock (12.0)
Common stock issued 0.9 28.7
Treasury stock purchased (0.1) (2.2)
Other changes 98.4 (2.7)
______ _____ ______ ________ ______ ______
BALANCE AT DECEMBER 31, 1991 225.0 77.2 585.0 2,035.6 100.8 2.2
Net income 243.2
Dividends declared:
On common stock (156.7)
On preferred stock (21.9)
Common stock issued 2.0 68.3
Preferred stock issued 200.0 (6.8)
Other changes (17.3) (36.5)
______ _____ ______ ________ ______ ______
BALANCE AT DECEMBER 31, 1992 425.0 79.2 646.5 2,100.2 83.5 (34.3)
Net income 377.4
Dividends declared:
On common stock (156.1)
On preferred stock (23.6)
Common stock issued 0.9 32.6
Treasury stock purchased (3.7) (203.9)
Other changes 40.6 (0.8)
______ _____ ______ ________ ______ ______
BALANCE AT DECEMBER 31, 1993 $425.0 $76.4 $475.2 $2,297.9 $124.1 $(35.1)
====== ===== ====== ======== ====== ======
<FN>
(Amounts in millions)
See notes to financial statements
56 Transamerica Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS December 31, 1993
_____________________________________________________________________________
[A] SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Transamerica
Corporation and its subsidiaries. Transamerica's investment in Sedgwick Group
plc is carried at cost plus equity in undistributed earnings since the date of
acquisition.
INVESTMENTS
Investments in fixed maturities, comprising bonds, notes and redeemable
preferred stocks, are carried at amortized cost and generally held to
maturity. Fixed maturity securities which are expected to be called by the
issuer or sold in the next three months are classified as available for sale
and carried at the lower of amortized cost or market value. Market value is
based on quoted market prices. For fixed maturity securities not actively
traded, including private placements, market value is estimated using value
obtained from independent pricing services. Changes to the carrying amount of
securities available for sale, if any, are included in shareholders' equity.
Investments in equity securities, comprising corporate common and
nonredeemable preferred stocks, are carried at fair value based on quoted
market prices. Realized gains and losses on investment transactions are
determined generally on a specific identification basis and included in income
on the trade date.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include money market funds and marketable securities
with original maturities of three months or less except for such securities
held by the life insurance operation which are included in short-term
investments.
DEPRECIATION AND AMORTIZATION
Property and equipment, which are stated on the basis of cost, are depreciated
by use of the straight-line method over their estimated useful lives. Goodwill
is amortized over 40 years.
INCOME TAXES
Transamerica provides deferred taxes based on enacted tax rates in effect on
the dates temporary differences between the book and tax bases of assets and
liabilities reverse.
FINANCE
Finance charges are generally recognized as earned on an effective yield
method. An allowance for losses is provided in an amount sufficient to cover
estimated uncollectible receivables.
Leasing revenues are recognized as rentals become due.
Tax service revenues are recognized as income generally when contracts are
executed with a portion of the revenues amortized over the estimated lives of
the contracts.
INSURANCE
The accounts of the life insurance operation have been included in the
consolidated financial statements on the basis of generally accepted
accounting principles which differ in some respects from those followed in
reports to regulatory authorities.
Life insurance premiums are generally recognized as earned over the premium
paying periods, with reserves for future benefits established from such
premiums on a net-level premium method based upon estimated investment yields,
withdrawals, mortality and other assumptions which were appropriate at the
time the policies were issued. Premiums and deposits for universal life and
other interest-sensitive life insurance products that do not involve
significant mortality or morbidity risk are recorded as liabilities. In 1993
Transamerica adopted this method of accounting for its structured settlement
products based on the determination that there is insignificant mortality risk
from these products. Prior year financial statements have been reclassified
which reduced premium income and life insurance related expenses by an equal
amount. Costs of acquiring new life insurance business, principally
commissions and certain variable underwriting and field office expenses, all
of which vary with and are primarily related to the production of new business,
are deferred and amortized in proportion to gross profit. The aforementioned
change in accounting for the structured settlement products increased
amortization of deferred policy acquisition costs and reduced net income $39
million including an immaterial amount related to prior years. Adequate
provision is made for reported and unreported claims and related expenses.
Asset management and advisory fees are recorded in revenue during the period
such services are performed.
NEW ACCOUNTING STANDARDS
In 1993, Transamerica adopted the Financial Accounting Standards Board's new
standard on accounting for reinsurance ceded under reinsurance contracts. The
new standard requires reinsurance receivables under reinsurance agreements,
which totaled $990.5 million at December 31, 1993 and $886.8 million at
December 31, 1992 and are included in the balance sheet caption trade and
other receivables, to be reported as assets instead
Transamerica Corporation and Subsidiaries 57
[A] SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of the previous practice of netting the receivable against the related
liability. The new standard also precludes immediate gain recognition on
retroactive reinsurance agreements which does not impact Transamerica.
In May 1993, the Financial Accounting Standards Board issued a new standard on
accounting for impairment of loans which Transamerica must adopt by the first
quarter of 1995. The new standard requires that impaired loans be measured
based on either the fair value of the loan, if discernible, the present value
of expected cash flows discounted at the loan's effective interest rate or the
fair value of the collateral if the loan is collateral dependent. When
adopted, the new standard is not expected to have a material effect on the
consolidated financial statements of Transamerica.
Also in May 1993, the Financial Accounting Standards Board issued a new
standard on accounting for certain investments in debt and equity securities
which Transamerica will adopt in the first quarter of 1994. Under the new
standard Transamerica will report at fair value its investments in debt
securities for which Transamerica does not have the positive intent and ability
to hold to maturity. Unrealized gains and losses will be reported on an after
tax basis in a separate component of shareholders' equity. In connection with
the adjustment to fair value of investments associated with interest-sensitive
products, Transamerica will also adjust deferred policy acquisition costs
equivalent to the amount that would be required upon realization of such gains
or losses. The deferred policy acquisition adjustment will also be included
with the unrealized gains and losses component of shareholders' equity on an
after tax basis. Had the new standard been adopted at December 31, 1993 and had
all debt securities held for investment been reported at fair value, the impact
on the consolidated financial statements of Transamerica would have been an
$804.5 million increase in shareholders' equity with no effect on income.
EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of common stock are based on the weighted average number of
shares outstanding (78,495,000 in 1993, 78,050,000 in 1992 and 76,676,000 in
1991) after deduction of preferred dividends.
[B] CAPITAL STOCK
Transamerica has outstanding 2,250 shares of Dutch Auction Rate Transferable
Securities Preferred Stock (DARTS) ($100 par value, $100,000 liquidation
value) in Series A-1, B-1 and C-1 of 750 shares each. Dividends, which are
cumulative, are normally determined every 49 days through auction procedures.
The dividend rates for Series A-1, B-1 and C-1 shares were 3.15%, 2.90% and
3.09% at December 31, 1993 and 3.79%, 3.85% and 3.64% at December 31, 1992.
In January 1992 Transamerica issued 400,000 shares of Series D Preferred Stock
($100 par value, $500 liquidation value) resulting in proceeds of $200 million
before underwriting discounts and issuance costs. Dividends, which are
cumulative, are at the rate of 8.5% of the liquidation preference per annum.
One preference stock purchase right accompanies each share of common stock
outstanding. Each right will entitle the holder to buy from Transamerica a
unit consisting of 1/100 of a share of Series A Participating Preference Stock
at an exercise price of $135 per unit. The rights become exercisable ten days
after a public announcement that a person or group has acquired 20% or more of
Transamerica's common stock or has commenced a tender offer for 30% or more of
the common stock. The rights may be redeemed prior to becoming exercisable by
action of the Board of Directors at a redemption price of $0.05 per right. If
Transamerica is acquired by any person after the rights become exercisable,
each right will entitle its holder to purchase stock of the acquiring company
having a market value of twice the exercise price of each right. The rights
expire on August 8, 1996.
At December 31, 1993, 5,000,000 shares of preference stock (without par value)
were authorized but unissued.
[C] STOCK OPTION PLANS
At December 31, 1993, under Transamerica's stock option plans, 11,660,839
shares of common stock (12,690,920 shares at December 31, 1992) were reserved
principally for sale to key employees of the Corporation and subsidiaries at
market value on the date options are granted. During 1993, options for
1,670,700 shares were granted, and options for 640,918 shares were cancelled
due to forfeiture. Options were exercised for 1,019,081 shares in 1993,
1,567,553 shares in 1992 and 300,223 shares in 1991, at aggregate option
prices of $36 million, $52.1 million and $8.1 million. Of the options for
5,557,097 shares outstanding at December 31, 1993 (5,546,396 shares at
December 31, 1992) at an aggregate option price of $225.9 million, options for
2,352,722 shares were exercisable. In February 1994, options for 1,541,850
shares were granted at an option price equal to market value on the date
granted.
Page 58 Transamerica Corporation and Subsidiaries
[D] INCOME TAXES
The provision for income taxes on income from continuing operations comprises:
_____________________________________________________________________________
(Amounts in millions) 1993 1992 1991
Federal current $213.0 $225.7 $131.7
Federal deferred tax benefits (104.1) (42.5) (102.8)
State 27.1 28.7 23.5
Foreign 14.1 5.6 13.8
______ ______ ______
$150.1 $217.5 $ 66.2
====== ====== ======
The 1993 provision for income taxes on income from continuing operations
includes $8.4 million from the revaluation of the deferred tax liability for
the effect of the federal tax rate increase.
Deferred income taxes for continuing operations reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the deferred tax assets and liabilities as of
December 31, 1993 and 1992 are as follows:
_____________________________________________________________________________
(Amounts in millions) 1993 1992
Deferred tax assets:
Allowance for losses $120.6 $131.8
Impairment of investments 36.2 46.5
Post employment benefits other than pensions 20.1 18.7
Life insurance policy liabilities 453.8 330.2
Capital loss carryforward 41.1
______ ______
671.8 527.2
Deferred tax liabilities:
Deferred policy acquisition costs 609.2 534.1
Accelerated depreciation 196.6 200.9
Unrealized gains on equity securities 66.9 38.5
Discount amortization on notes and loans payable 55.8 64.1
Other 44.7 43.7
______ ______
973.2 881.3
______ ______
Net deferred tax liability $301.4 $354.1
====== ======
The difference between federal income taxes on income from continuing
operations computed at the statutory rate and the provision for income taxes
is:
_____________________________________________________________________________
(Amounts in millions) 1993 1992 1991
Federal income taxes at statutory rate $210.2 $190.5 $ 37.8
State income taxes 17.6 15.9 15.0
Amortization of goodwill 7.7 7.5 8.0
Prior year items (94.2) 2.6
Tax rate change 8.4
Other 0.4 3.6 2.8
______ ______ ______
$150.1 $217.5 $ 66.2
====== ====== ======
Pretax income from foreign operations totaled $30 million in 1993, $25 million
in 1992 and $30 million in 1991. Income tax payments totaled $135.5 million in
1993, $174.8 million in 1992 and $127.2 million in 1991.
Transamerica Corporation and Subsidiaries 59
[E] INVESTMENTS
The amortized cost and market value of fixed maturities held for investment at
December 31, 1993 and 1992 are as follows:
______________________________________________________________________________
(Amounts in millions) Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
DECEMBER 31, 1993
U.S. Treasury securities and
obligations of U.S.
government authorities and
agencies $ 205.3 $ 15.3 $ 0.8 $ 219.8
Obligations of states and
political subdivisions 163.1 18.8 0.2 181.7
Foreign governments 144.9 12.5 157.4
Corporate securities 6,537.6 738.3 18.6 7,257.3
Mortgage-backed securities 8,571.2 571.2 24.4 9,118.0
Public utilities 2,927.1 253.5 8.4 3,172.2
Redeemable preferred stock 3.8 0.2 3.6
_________ ________ ______ _________
$18,553.0 $1,609.6 $ 52.6 $20,110.0
========= ======== ====== =========
DECEMBER 31, 1992
U.S. Treasury securities and
obligations of U.S.
government authorities and
agencies $ 188.7 $ 6.3 $ 0.3 $ 194.7
Obligations of states and
political subdivisions 116.3 16.3 9.3 123.3
Foreign governments 309.5 24.6 0.4 333.7
Corporate securities 5,447.7 522.4 81.4 5,888.7
Mortgage-backed securities 6,909.6 427.9 39.4 7,298.1
Public utilities 3,127.4 207.5 4.9 3,330.0
Redeemable preferred stock 11.9 5.0 6.9
_________ ________ ______ _________
$16,111.1 $1,205.0 $140.7 $17,175.4
========= ======== ====== =========
Fixed maturity securities which are expected to be called by the issuer or
sold in the next three months are classified as available for sale and carried
at the lower of amortized cost or market value. At December 31, 1993 the fair
value of the fixed maturities available for sale portfolio based upon quoted
market prices was $920.2 million with gross unrealized gains of $47.8 million
and no unrealized losses. At December 31, 1992 the fair value of the fixed
maturities available for sale portfolio was $799.3 million with gross
unrealized gains of $39.9 million and no unrealized losses.
The cost of equity securities was $275.1 million at December 31, 1993 and
$228.5 million at December 31, 1992. The net unrealized gain on marketable
equity securities, after related income taxes, is included in shareholders'
equity. Gross unrealized gains and gross unrealized losses at December 31,
1993 amounted to $194.5 million and $3.5 million resulting in net unrealized
gains before taxes of $191 million.
60 Transamerica Corporation and Subsidiaries
[E] INVESTMENTS (CONTINUED)
The amortized cost and market value of fixed maturities at December 31, 1993 by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
______________________________________________________________________________
(Amounts in millions) Amortized Market
Cost Value
Due in one year or less $ 270.8 $ 276.6
Due after one year through five years 1,224.0 1,315.8
Due after five years through ten years 1,513.9 1,634.7
Due after ten years 6,973.1 7,764.9
_________ _________
9,981.8 10,992.0
Mortgage-backed securities 8,571.2 9,118.0
_________ _________
$18,553.0 $20,110.0
========= =========
The carrying values and estimated fair values of investments in mortgage loans
on real estate and loans to life insurance policyholders at December 31, 1993
and 1992 are as follows:
______________________________________________________________________________
(Amounts in millions) Carrying Estimated
Value Fair Value
DECEMBER 31, 1993
Mortgage loans on real estate $368.9 $402.4
====== ======
Loans to life insurance policyholders $396.5 $373.1
====== ======
DECEMBER 31, 1992
Mortgage loans on real estate $447.6 $475.2
====== ======
Loans to life insurance policyholders $370.5 $365.2
====== ======
The fair values for mortgage loans on real estate and policyholder loans are
estimated using discounted cash flow calculations, using interest rates
currently being offered for similar loans to borrowers with similar credit
ratings. Loans with similar characteristics are aggregated for calculation
purposes.
Gain (loss) on investment transactions, included in consolidated revenues,
comprises:
_____________________________________________________________________________
(Amounts in millions) 1993 1992 1991
Net gain on sale of investments $157.3 $136.1 $134.7
Provision for impairment in value (55.5) (95.2) (81.0)
Accelerated amortization of deferred policy
acquisition costs (62.8) (33.2) (56.6)
______ ______ ______
$ 39.0 $ 7.7 $ (2.9)
====== ====== ======
Proceeds from sales of fixed maturities were $4.9 billion in 1993, $2.6
billion in 1992 and $4.1 billion in 1991. Gross gains of $212.7 million in
1993, $170.5 million in 1992 and $141.3 million in 1991, and gross losses of
$63.5 million in 1993, $65 million in 1992 and $18.1 million in 1991 were
realized on those sales.
Transamerica Corporation and Subsidiaries 61
[F] NOTES AND LOANS PAYABLE
_____________________________________________________________________________
(Amounts in millions) 1993 1992
TRANSAMERICA FINANCE GROUP, INC.:
Short-term bank loans, commercial paper and current
portion of long-term debt $1,910.8 $1,062.4
Long-term debt due subsequent to one year:
Notes and debentures; interest at 4.48% to 9.1%;
maturing through 2002 1,618.6 1,927.1
Notes and debentures; interest at 13.80% to
13.88%; maturity value of $582.8 million;
maturing through 2012 146.8 340.9
Commercial paper and other notes at various
interest rates and terms supported by credit
agreements expiring through 1997 2,505.0 2,813.1
Subordinated notes and debentures; interest at
6.75% to 11%; maturing through 2003 582.8 344.7
Loans due to parent company and other subsidiaries 267.5 101.4
________ ________
7,031.5 6,589.6
PARENT COMPANY AND OTHER SUBSIDIARIES:
Short-term bank loans, commercial paper and
current portion of long-term debt 112.2 0.2
Long-term debt due subsequent to one year:
Notes and debentures; interest at 6.50% to 10%;
maturing through 2016 458.6 588.3
Commercial paper and other notes at various
interest rates and terms supported by credit
agreements expiring through 1996 254.5 383.6
Notes at variable interest rates; maturing
through 1997 114.7 112.8
Less loans to Transamerica Finance Group, Inc. (267.5) (101.4)
________ ________
672.5 983.5
________ ________
$7,704.0 $7,573.1
======== ========
The estimated fair value of notes and loans payable, using rates currently
available for debt with similar terms and maturities, is $8,141.3 million at
December 31, 1993 and $7,845.2 million at December 31, 1992.
Assets with a net book value of $113.9 million at December 31, 1993, consisting
primarily of land, buildings and equipment, are collateral for certain of the
above debt.
The aggregate annual maturities for the four years subsequent to December 31,
1994 are $1.1 billion in 1995, $2.5 billion in 1996, $1.1 billion in 1997 and
$0.5 billion in 1998.
In 1993 Transamerica Finance Group redeemed $125 million of deep discount
long-term debt with a book value of $90.7 million, which resulted in a $23.1
million extraordinary loss, after related taxes of $11.4 million.
62 Transamerica Corporation and Subsidiaries
[F] NOTES AND LOANS PAYABLE (CONTINUED)
Under credit agreements with various banks, Transamerica and its subsidiaries
had the ability to borrow up to $4.1 billion with interest at variable rates
at December 31, 1993. There were no borrowings outstanding under these credit
lines at that date. These credit agreements, which expire through 1997,
require a fee on the unused commitment.
Transamerica and its subsidiaries use interest rate exchange agreements to
hedge the interest rate sensitivity of their outstanding indebtedness. Certain
of these agreements call for the payment of fixed rate interest by
Transamerica and its subsidiaries in return for the assumption by other
contracting parties of the variable rate cost. At December 31, 1993, such
agreements covering the notional amount of $380 million at a weighted average
fixed interest rate of 8.46% expiring through 2000 and $840 million of one
year agreements expiring in 1994 with an average interest rate of 3.78% were
outstanding. Additionally at December 31, 1993, exchange agreements covering
the notional amount of $266 million expiring through 1997 were outstanding, in
which Transamerica and its subsidiaries receive interest from other
contracting parties at a weighted average fixed interest rate of 7.22% and pay
interest at variable rates to those parties. 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 counter parties. At
December 31, 1993 the interest rate exchange agreements are with banks rated A
or better by one or more of the major credit rating agencies.
The estimated fair value of the interest rate exchange agreements, determined
on a net present value basis, was a negative $28.6 million at December 31,
1993 and a negative $37.8 million at December 31, 1992. The fair value
represents the estimated amounts that Transamerica and its subsidiaries would
be required to pay to terminate the exchange agreements, taking into account
current interest rates.
Interest payments, net of amounts received from interest rate exchange
agreements, totaled $623.4 million in 1993, $661 million in 1992 and $578.9
million in 1991.
[G] FAIR VALUE OF INVESTMENT CONTRACTS
Investment-type contracts are included in life insurance policy liabilities.
Fair value of investment-type contracts is estimated using discounted cash
flow calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued. The carrying amounts and estimated fair values of the
liabilities for investment-type contracts at December 31, 1993 and 1992 are as
follows:
______________________________________________________________________________
(Amounts in millions) Carrying Estimated
Value Fair Value
DECEMBER 31, 1993
Single and flexible premium deferred annuities $ 6,630.9 $ 6,378.2
Single premium immediate annuities 3,354.6 3,796.9
Guaranteed investment contracts 1,994.5 2,093.9
Other deposit contracts 1,544.4 1,584.4
_________ _________
$13,524.4 $13,853.4
========= =========
DECEMBER 31, 1992
Single and flexible premium deferred annuities $ 5,748.4 $ 5,526.8
Single premium immediate annuities 2,856.1 3,043.7
Guaranteed investment contracts 1,777.2 1,867.5
Other deposit contracts 960.0 979.8
_________ _________
$11,341.7 $11,417.8
========= =========
Investment-type contracts and other life insurance policy reserves generally
provide a natural hedge against fair value changes in the investments held to
fund those reserves.
Transamerica Corporation and Subsidiaries 63
[H] CONCENTRATION OF RISK, SECURITIZATION AND FAIR VALUE OF RECEIVABLES
During the normal conduct of its operations, Transamerica engages in the
extension of credit to homeowners, electronics and appliance dealers, retail
recreational products and computer stores and others. The risk associated with
that credit is subject to economic, competitive and other influences. While a
substantial portion of the risk is diversified, certain operations are
concentrated in one industry or geographic area.
Transamerica's finance receivables include $3.1 billion, net of unearned
finance charges and insurance premiums, of real estate secured loans,
principally first and second mortgages secured by residential properties of
which approximately 50% is located in California. The commercial finance
receivables portfolio represents lending arrangements with over 200,000
customers. At December 31, 1993, the portfolio included 13 customers with
individual balances in excess of $15 million. These accounts represented 10%
of total commercial net finance receivables outstanding at December 31, 1993.
In July 1990, Transamerica entered into a 5-year arrangement under which it
securitized and sold, with limited recourse, a $375 million participation
interest in a pool of its eligible insurance finance receivables, which
Transamerica continues to service. Newly originated eligible receivables are
added to the pool. Collection of receivables are reinvested in the pool to
maintain an aggregate outstanding balance of approximately $375 million.
The carrying amounts and estimated fair values of the finance receivable
portfolio at December 31, 1993 and 1992 are as follows:
______________________________________________________________________________
(Amounts in millions) Carrying Estimated
Value Fair Value
DECEMBER 31, 1993
Fixed rate receivables--
Consumer $3,622.3 $4,391.2
Commercial 469.9 478.3
Variable rate receivables--
Commercial 2,390.3 2,390.3
________ ________
$6,482.5 $7,259.8
======== ========
DECEMBER 31, 1992
Fixed rate receivables--
Consumer $3,557.9 $4,320.4
Commercial 413.3 424.9
Variable rate receivables--
Commercial 2,371.5 2,371.5
________ ________
$6,342.7 $7,116.8
======== ========
The estimated fair values of consumer finance receivables, substantially all
of which are fixed rate instalment loans collateralized by residential real
estate, and the fixed rate commercial finance loans are based on the
discounted value of the future cash flows expected to be received using
available secondary market prices for securities backed by similar loans after
adjustment for differences in loan characteristics. In the absence of readily
available market prices, the expected future cash flows are discounted at
effective rates currently offered by Transamerica for similar loans. For
variable rate commercial loans, which comprise the majority of the commercial
loan portfolio, the carrying amount represents a reasonable estimate of fair
value.
64 Transamerica Corporation and Subsidiaries
[I] INVESTMENT IN SEDGWICK GROUP PLC
In 1985 Transamerica Corporation exchanged Fred. S. James & Co., Inc. for a
39% interest in Sedgwick Group plc, a London-based international insurance
brokerage firm. On February 28, 1991 Transamerica sold 59 million shares,
resulting in a $54.3 million pretax gain which is included in consolidated
insurance brokerage revenues. In 1993, Transamerica's equity interest was
reduced from 25% to 21% due to a rights offering by Sedgwick which resulted in
a $2.6 million after tax loss to Transamerica. At December 31, 1993, the
aggregate quoted market price of the 114,524,000 shares owned was $307.1
million.
The consolidated statement of income includes Transamerica's equity in the
earnings of Sedgwick. Amounts included for Sedgwick are reported on a one
quarter lag and based upon Sedgwick's most recent published financial
statements. These statements were prepared by Sedgwick in pounds sterling in
accordance with accounting principles generally accepted in the United Kingdom
and translated by Transamerica into U.S. dollars in accordance with foreign
exchange translation practices prescribed in the United States, and are
summarized below:
______________________________________________________________________________
September 30 (Amounts in millions) 1993 1992
ASSETS
Cash and temporary investments $1,256.3 $1,115.8
Premiums, fees and other receivables 2,336.5 2,116.7
Other assets 917.6 860.9
________ ________
$4,510.4 $4,093.4
======== ========
LIABILITIES AND CAPITAL
Accounts payable and other liabilities $3,262.5 $3,169.3
Long-term liabilities 769.9 578.6
Capital 478.0 345.5
________ ________
$4,510.4 $4,093.4
======== ========
______________________________________________________________________________
Year Ended September 30 (Amounts in millions) 1993 1992 1991
REVENUES $1,173.1 $1,211.9 $1,133.6
EXPENSES
Salaries and employee benefits 666.5 676.2 621.0
Other operating expenses 405.5 420.0 405.0
Income taxes 38.3 43.8 37.5
________ ________ ________
1,110.3 1,140.0 1,063.5
________ ________ ________
Net income $ 62.8 $ 71.9 $ 70.1
======== ======== ========
The principal differences between U.K. accounting principles and those
generally accepted in the United States are primarily due to differences in
accounting for business combinations. Sedgwick, in accounting for its
acquisition of James, wrote off all goodwill immediately against capital. Had
Sedgwick followed U.S. accounting principles and accounted for the acquisition
as a purchase transaction it would have recognized goodwill as an asset to be
amortized over a period not to exceed 40 years, and its capital would have
been greater by the amount of that goodwill. These differences do not affect
the consolidated financial statements, because the goodwill and related
amortization are included in Transamerica's financial statements. Goodwill
amounts to $268.6 million and is being amortized over a 40-year period.
Transamerica's share of Sedgwick's net income, after the amortization of
goodwill and the provision for U.S. taxes on Sedgwick's distributed and
undistributed income, amounted to $5.6 million in 1993, $8.9 million in 1992
and $6.9 million in 1991.
Transamerica Corporation and Subsidiaries 65
[J] PENSION PLANS
Transamerica Corporation and its subsidiaries, including discontinued
operations, have a number of noncontributory defined benefit pension plans
covering substantially all employees. Plans covering salaried employees provide
pension benefits that are based on the employee's compensation during the
highest paid 60 consecutive months during the 120 months before retirement. The
general policy is to fund current service costs currently and prior pension
service costs over periods ranging from 10 to 30 years.
A summary of the components of net periodic pension cost follows:
_____________________________________________________________________________
(Amounts in millions) 1993 1992 1991
Service cost--benefits earned during the period $ 15.6 $ 17.7 $ 20.1
Interest cost on projected benefit obligation 43.6 39.2 37.6
Actual return on plan assets (145.7) (100.4) (86.4)
Deferral of current gains in excess of
expected return 97.7 55.1 45.5
Amortization of prior service costs 5.0 3.5 3.4
______ ______ ______
Total pension cost $ 16.2 $ 15.1 $ 20.2
====== ====== ======
The following table sets forth the amounts recognized in the consolidated
statement of financial position for the pension plans:
_____________________________________________________________________________
(Amounts in millions) 1993 1992
Actuarial present value of benefit obligations:
Vested benefit obligation* $601.0 $493.9
====== ======
Accumulated benefit obligation $609.1 $503.8
====== ======
Projected benefit obligation, including effects of
future salary increases $651.9 $574.0
Plan assets at fair value 777.2 639.0
______ ______
Excess of plan assets over projected benefit obligation $125.3 $ 65.0
====== ======
The excess of plan assets over projected benefit
obligation comprises:
Net pension liability $ (2.3) $ (2.4)
Unrecognized net gain arising since January 1, 1986 146.0 80.3
Unrecognized prior service cost (20.6) (14.3)
Unrecognized net obligation at January 1, 1986 net
of amortization (8.3) (9.7)
Adjustment required to recognize minimum liability 10.5 11.1
______ ______
$125.3 $ 65.0
====== ======
*A portion of the vested benefit obligation is
unconditionally guaranteed by Transamerica
Occidental Life Insurance Company, a subsidiary
of Transamerica.
The projected benefit obligation was determined using a weighted average
discount rate of 7.25% (7.75% in 1992) and an assumed rate of compensation
increase of 5.5%. The expected long-term rate of return on plan assets was
8.0% (8.5% in 1992 and 9.0% in 1991).
66 Transamerica Corporation and Subsidiaries
[K] OTHER POST EMPLOYMENT BENEFIT PLANS
Transamerica Corporation and its subsidiaries sponsor a defined benefit health
care plan and a defined life insurance plan that provides post employment
benefits to eligible retirees. The plans are contributory, with retiree
contributions adjusted annually, and contain other cost-sharing features such
as deductibles and coinsurance. Medical and life insurance benefits are based
on the employee's length of service and age at retirement from Transamerica
Corporation. The general policy is to fund these benefits on a pay-as-you-go
basis.
In 1991, Transamerica Corporation elected early adoption of Statement of
Financial Accounting Standards No. 106 on accounting for post employment
benefits other than pensions. Adoption of the statement effective January 1,
1991 resulted in a reduction of net income for the year ended December 31,
1991 of $37.5 million, including a $34.7 million after tax cumulative charge
for the accumulated post employment benefit obligation ($52.6 million) accrued
as of January 1, 1991 which Transamerica Corporation elected to recognize upon
adoption.
A summary of the components of net periodic other post employment benefit cost
follows:
______________________________________________________________________________
(Amounts in millions) 1993 1992 1991
Service cost--benefits earned during the period $1.3 $1.1 $1.3
Interest cost on projected benefit obligation 5.1 4.5 4.2
Amortization of unrecognized net loss 0.3
____ ____ ____
Total other post employment benefit cost $6.7 $5.6 $5.5
==== ==== ====
The following table sets forth the amounts recognized in the consolidated
statement of financial position for other post employment benefit plans:
______________________________________________________________________________
(Amounts in millions) 1993 1992
Actuarial present value of other post employment
benefit obligations:
Retirees $51.7 $41.5
Active plan participants 22.5 19.3
Unrecognized net loss (16.9) (5.7)
_____ _____
Unfunded accrued projected benefit obligation $57.3 $55.1
===== =====
The weighted average annual assumed rate of increase in the health care cost
trend rate is 12.7% for 1994 and is assumed to decrease gradually to 7.8% in
1999 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. Increasing the
trend rate by one percentage point in each year would increase the actuarial
present value obligation for post employment medical benefits as of December
31, 1993 and 1992 by $8.3 million and $6.8 million and the aggregate of the
service and interest cost components of net periodic post employment benefit
costs by $0.9 million in 1993 and $0.6 million in 1992 and 1991. The weighted
average discount rate used in determining the post employment benefit
obligation was 7.25% at December 31, 1993 and 7.75% at December 31, 1992. The
portion of the unrecognized net loss in excess of 10% of the actuarial present
value of other post employment benefit obligations is amortized over the
average remaining service period of active plan participants.
Transamerica Corporation and Subsidiaries 67
[L] RETAINED EARNINGS RESTRICTIONS
Under certain circumstances, the provisions of loan agreements and statutory
requirements place limitations on the amount of funds which can be remitted to
Transamerica by its consolidated subsidiaries. Of the net assets of
Transamerica's consolidated subsidiaries, as adjusted for intercompany account
balances, at December 31, 1993, approximately $3.6 billion is so restricted,
and $1.1 billion is free for remittance to Transamerica subject to investment
and operating requirements.
[M] BUSINESS SEGMENT INFORMATION
Business segment data, as required by Statement of Financial Accounting
Standards No. 14, Financial Reporting for Segments of a Business Enterprise,
for each of the years in the three year period ended December 31, 1993
included in the tables in the Financial Review on pages 37 to 51 of this
annual report are an integral part of these financial statements.
[N] DISCONTINUED 0PERATIONS
On July 20, 1992, Transamerica Corporation announced that its Board of
Directors approved a plan to withdraw from the property and casualty insurance
business. Transamerica sold its property and casualty insurance subsidiary,
Transamerica Insurance Group, through an initial public offering in April 1993
and a secondary offering in December 1993. The net proceeds, after
underwriting discounts, totaled $1 billion in cash from the two offerings,
resulting in a $125 million after tax loss on the sale of which $75 million
was recorded in 1992 on an estimated basis and $50 million in 1993 upon the
completion of the secondary offering.
The following results of the discounted property and casualty insurance
business are included in income from discontinued operations for the years
ended December 31, 1992 and 1991:
_____________________________________________________________________________
(Amounts in millions) 1992 1991
Revenues $2,122.9 $2,143.9
Costs and expenses 2,345.3 2,112.1
________ ________
Income (loss) before tax benefits (222.4) 31.8
Income tax benefits 104.3 22.5
________ ________
Operating income (loss) (118.1) 54.3
Provision for estimated loss on disposition,
net tax benefit of $172.6 million (75.0)
Cumulative effect of change in accounting for
post employment benefits other than pensions (14.6)
Operating losses for the period subsequent to
July 1, 1992 which are included in the
provision for estimated loss on disposition 93.4
________ ________
Income (loss) from discontinued operations $ (99.7) $ 39.7
======== ========
68 Transamerica Corporation and Subsidiaries
[N] DISCONTINUED OPERATIONS (CONTINUED)
In connection with the offering a subsidiary of Transamerica, in 1992, assumed
responsibility by means of a reinsurance agreement for certain assumed treaty
reinsurance business written prior to 1986 for which it received assets which
are expected to be sufficient to fund the liquidation of the business.
Transamerica has collateralized the estimated ultimate obligation of $361
million at December 31, 1993 by providing letters of credit aggregating $150
million and by placing $213 million of its assets in a trust. Additionally
Transamerica agreed to pay up to $89.3 million in adverse loss development on
certain paid environmental losses.
In addition, prior to the initial public offering Transamerica received a
dividend from Transamerica Insurance Group comprising its 51% equity interest
in River Thames Insurance Company Limited, a London-based reinsurance
operation.
[O] COMMITMENTS AND CONTINGENCIES
Substantially all leases of Transamerica and its subsidiaries are operating
leases principally for the rental of real estate. Total rental expense
amounted to $88.1 million in 1993, $89.4 million in 1992 and $93.2 million in
1991.
Contingent liabilities arising from litigation, income taxes and other matters
are not considered material in relation to the consolidated financial position
of Transamerica and subsidiaries.
[P] SUBSEQUENT EVENT
On February 13, 1994, Transamerica entered into an Asset Purchase Agreement to
purchase all the assets of the container division of Tiphook plc for up to
$1.1 billion in cash. Completion of the acquisition is subject to approval by
Tiphook's shareholders and successful completion of a consent solicitation and
bond tender by Tiphook.
Transamerica Corporation and Subsidiaries 69
REPORT OF MANAGEMENT
The management of Transamerica Corporation is responsible for the financial
information appearing in this Annual Report. The consolidated financial
statements were prepared by management in accordance with generally accepted
accounting principles, and include amounts which are based on the best
information currently available. The financial statements are audited by Ernst
& Young, independent auditors, through the application of generally accepted
auditing standards which include a study and evaluation of Transamerica's
internal accounting control system.
Transamerica maintains a system of internal accounting controls designed to
provide reasonable assurance that assets are safeguarded against loss, that
the financial records reflect fairly the transactions of the Company, and that
established policies and procedures are followed. The concept of reasonable
assurance is based on the recognition that the cost of a system of internal
accounting controls must be related to the benefits derived and that the
balancing of those factors requires estimates and judgments. The internal
accounting control system includes the selection, training and development of
qualified personnel, organizational arrangements that provide for an
appropriate division of responsibilities and the communication of Company
policies and procedures throughout the organization. The system is reviewed
and evaluated by a program of internal audits.
The Board of Directors, acting through its audit committee composed of outside
directors, reviews and monitors Transamerica's accounting principles and
internal accounting controls. The audit committee meets periodically with
management, the internal auditors and the independent auditors. The
independent auditors and internal auditors have full and free access to the
audit committee to discuss the results of their audit work and their views on
accounting policies, the adequacy of internal accounting controls and the
quality of financial reporting.
REPORT OF ERNST & YOUNG INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS OF TRANSAMERICA CORPORATION
We have audited the consolidated balance sheet of Transamerica Corporation and
subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1993. These financial statements
are the responsibility of Transamerica Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of Sedgwick Group plc, used as the basis
for recording the equity in net income of that corporation, were audited by
other auditors whose reports have been furnished to us. Our opinion, insofar
as it relates to the amounts of equity in net income included for Sedgwick
Group plc, is based solely on the reports of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Transamerica Corporation and
subsidiaries at December 31, 1993 and 1992, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles.
In 1991, Transamerica Corporation changed its method of accounting for post
employment benefits other than pensions effective January 1, 1991.
ERNST & YOUNG
San Francisco, California
February 22, 1994
70 Transamerica Corporation and Subsidiaries
SUPPLEMENTARY FINANCIAL INFORMATION
_________________________________________________________________________________________________________________
March 31 June 30 September 30 December 31 1993 Total
SELECTED QUARTERLY
FINANCIAL DATA
1993
Revenues $1,149.9 $1,228.9 $1,209.5 $1,244.7 $4,833.0
======== ======== ======== ======== ========
Income from
continuing operations $ 91.8 $ 123.9 $ 138.9 $ 95.9 $ 450.5
Loss from
discontinued operations (50.0) (50.0)
Extraordinary loss on early
extinguishment of debt (23.1) (23.1)
________ ________ ________ ________ ________
Net income $ 91.8 $ 123.9 $ 138.9 $ 22.8 $ 377.4
======== ======== ======== ======== ========
Earnings per share of
common stock:
Income from
continuing operations $ 1.08 $ 1.49 $ 1.70 $ 1.17 $ 5.44
Loss from
discontinued operations (0.64) (0.64)
Extraordinary loss on early
extinguishment of debt (0.29) (0.29)
________ ________ ________ ________ ________
Net income $ 1.08 $ 1.49 $ 1.70 $ 0.24 $ 4.51
======== ======== ======== ======== ========
High and low sales prices
for common shares $53 7/8-45 5/8 $ 56 1/8-47 $61 3/8-52 1/2 $61 3/4-53 5/8 $61 3/4-45 5/8
_________________________________________________________________________________________________________________
March 31 June 30 September 30 December 31 1992 Total
1992
Revenues $1,083.6 $1,127.6 $1,148.6 $1,220.3 $4,580.1
======== ======== ======== ======== ========
Income from
continuing operations $ 71.1 $ 97.5 $ 87.4 $ 86.9 $ 342.9
Income (loss) from
discontinued operations 12.5 (37.2) (75.0) (99.7)
________ ________ ________ ________ ________
Net income $ 83.6 $ 60.3 $ 87.4 $ 11.9 $ 243.2
======== ======== ======== ======== ========
Earnings per share of
common stock:
Income from
continuing operations $ 0.88 $ 1.17 $ 1.04 $ 1.02 $ 4.11
Income (loss) from
discontinued operations 0.16 (0.48) (0.96) (1.28)
________ ________ ________ ________ ________
Net income $ 1.04 $ 0.69 $ 1.04 $ 0.06 $ 2.83
======== ======== ======== ======== ========
High and low sales prices
for common shares $43 7/8-37 1/8 $46 3/4-40 1/8 $ 46 1/4-40 $50 1/2-41 3/8 $50 1/2-37 1/8
<FN>
(Dollar amounts in millions except for share data)
Note A. The closing sales price for Transamerica common shares on February 28, 1994 was $50 3/4.
Transamerica Corporation and Subsidiaries 71
SELECTED ELEVEN-YEAR FINANCIAL DATA
_______________________________________________________________________________________________________
(Dollar amounts in millions except
for share data) 1993 1992 1991 1990 1989
EARNINGS
Revenues $ 4,833.0 $ 4,580.1 $ 4,256.1 $ 4,157.1 $ 4,516.5
Net income:
Income from continuing operations:
Income before investment transactions $ 425.2 $ 337.8 $ 47.1 $ 209.7 $ 240.4
Gain on investment transactions 25.3 5.1 (2.0) 3.0 24.2
_________ _________ _________ _________ _________
Income from continuing operations 450.5 342.9 45.1 212.7 264.6
Income (loss) from discontinued
operations (50.0) (99.7) 39.7 53.6 67.6
Extraordinary loss on early
extinguishment of debt (23.1)
Cumulative effect of accounting changes (34.7)
_________ _________ _________ _________ _________
Net income $ 377.4 $ 243.2 $ 50.1 $ 266.3 $ 332.2
========= ========= ========= ========= =========
Earnings per share of common stock (Note A):
Income from continuing operations:
Income before investment transactions $ 5.12 $ 4.05 $ 0.46 $ 2.55 $ 2.97
Gain on investment transactions 0.32 0.06 (0.03) 0.04 0.32
_________ _________ _________ _________ _________
Income from continuing operations 5.44 4.11 0.43 2.59 3.29
Income (loss) from discontinued
operations (0.64) (1.28) 0.52 0.70 0.89
Extraordinary loss on early
extinguishment of debt (0.29)
Cumulative effect of accounting changes (0.45)
_________ _________ _________ _________ _________
Total $ 4.51 $ 2.83 $ 0.50 $ 3.29 $ 4.18
========= ========= ========= ========= =========
Average number of common shares
outstanding (in thousands) 78,495 78,050 76,676 76,229 75,510
Return on average common
shareholders' equity (Note B) 12.2% 7.8% 3.1% 9.1% 12.2%
FINANCIAL POSITION
Total assets $36,050.5 $33,290.9 $31,133.6 $29,260.9 $27,357.1
Notes and loans payable:
Short-term debt and current
portion of long-term debt $ 2,023.0 $ 1,062.6 $ 715.4 $ 869.1 $ 1,038.2
Long-term debt 5,681.0 6,510.5 6,975.6 6,602.5 6,897.2
Shareholders' equity 3,363.5 3,300.1 3,025.8 3,016.7 2,928.7
Ratio of debt to debt plus equity:
Consolidated 69.6% 69.6% 71.8% 71.2% 73.0%
Consolidated, excluding debt
of financing subsidiaries 16.7% 23.0% 27.4% 29.0% 30.7%
OTHER DATA
Per share of common stock:
Dividends declared (Note C) $ 2.00 $ 2.00 $ 1.98 $ 1.94 $ 1.90
Book value $ 38.46 $ 36.31 $ 36.28 $ 36.56 $ 35.63
Market price at year end $ 56.75 $ 48.00 $ 39.88 $ 32.63 $ 44.25
Number of common shareholders of record 57,200 61,100 64,800 78,100 81,900
Number of employees (continuing operations) 10,700 10,700 10,600 10,700 12,400
========= ========= ========= ========= =========
<FN>
Note A. Earnings per share of common stock are based on the weighted average number of shares
outstanding in each year after deduction of preferred dividends in 1985-1993.
Note B. Computed on income before cumulative effect of accounting changes.
Note C. Quarterly dividends per share were 50 cents in 1993 and 1992.
72 Transamerica Corporation and Subsidiaries
SELECTED ELEVEN-YEAR FINANCIAL DATA (CONTINUED)
___________________________________________________________________________________________________________________
(Dollar amounts in millions except
for share data) 1988 1987 1986 1985 1984 1983
EARNINGS
Revenues $ 4,068.1 $ 3,930.8 $ 3,791.1 $ 3,366.0 $ 2,880.9 $ 3,059.4
Net income:
Income from continuing operations:
Income before investment transactions $ 223.8 $ 232.0 $ 184.9 $ 186.0 $ 148.9 $ 108.7
Gain on investment transactions 7.7 24.2 45.8 (19.1) (18.2) 18.9
_________ _________ _________ _________ _________ _________
Income from continuing operations 231.5 256.2 230.7 166.9 130.7 127.6
Income (loss) from discontinued
operations 111.5 177.4 59.4 (22.0) 35.0 68.4
Extraordinary loss on early
extinguishment of debt (3.2) (27.9)
Cumulative effect of accounting changes (80.9)
_________ _________ _________ _________ _________ _________
Net income $ 262.1 $ 430.4 $ 262.2 $ 144.9 $ 165.7 $ 196.0
========= ========= ========= ========= ========= =========
Earnings per share of common stock (Note A):
Income from continuing operations:
Income before investment transactions $ 2.79 $ 2.90 $ 2.32 $ 2.64 $ 2.20 $ 1.62
Gain on investment transactions 0.10 0.32 0.61 (0.28) (0.27) 0.28
_________ _________ _________ _________ _________ _________
Income from continuing operations 2.89 3.22 2.93 2.36 1.93 1.90
Income (loss) from discontinued
operations 1.48 2.33 0.80 (0.32) 0.51 1.02
Extraordinary loss on early
extinguishment of debt (0.04) (0.37)
Cumulative effect of accounting changes (1.07)
_________ _________ _________ _________ _________ _________
Total $ 3.30 $ 5.51 $ 3.36 $ 2.04 $ 2.44 $ 2.92
========= ========= ========= ========= ========= =========
Average number of common shares
outstanding (in thousands) 75,327 75,973 74,750 68,630 68,019 67,100
Return on average common
shareholders' equity (Note B) 11.8% 18.8% 12.5% 7.4% 8.9% 11.1%
FINANCIAL POSITION
Total assets $24,702.3 $21,273.8 $14,745.1 $12,420.0 $10,787.0 $ 9,422.1
Notes and loans payable:
Short-term debt and current
portion of long-term debt $ 2,024.8 $ 1,553.3 $ 370.8 $ 260.7 $ 195.2 $ 283.7
Long-term debt 5,780.2 5,238.2 2,533.4 2,559.7 2,476.7 1,873.6
Shareholders' equity 2,711.7 2,591.2 2,309.3 2,154.9 1,868.7 1,828.9
Ratio of debt to debt plus equity:
Consolidated 74.2% 72.4% 55.7% 56.7% 58.8% 54.1%
Consolidated, excluding debt
of financing subsidiaries 30.6% 30.6% 9.8% 13.2% 22.9% 13.6%
OTHER DATA
Per share of common stock:
Dividends declared (Note C) $ 1.86 $ 1.80 $ 1.72 $ 1.66 $ 1.60 $ 1.53
Book value $ 33.06 $ 31.40 $ 27.65 $ 27.99 $ 27.38 $ 26.97
Market price at year end $ 33.88 $ 29.88 $ 32.63 $ 33.75 $ 23.13 $ 31.13
Number of common shareholders of record 87,800 91,400 95,800 101,100 108,000 113,400
Number of employees (continuing operations) 12,400 12,800 11,200 11,400 17,100 16,700
========= ========= ========= ========= ========= =========
<FN>
Note A. Earnings per share of common stock are based on the weighted average number of shares
outstanding in each year after deduction of preferred dividends in 1985-1993.
Note B. Computed on income before cumulative effect of accounting changes.
Note C. Quarterly dividends per share were 50 cents in 1993 and 1992.
Transamerica Corporation and Subsidiaries 73
COMMON STOCK LISTED AND TRADED
Transamerica's common stock (symbol: TA) is listed and traded in the U.S. on
the New York and Pacific Stock Exchanges and outside the U.S. on the following
exchanges: Amsterdam, Basel, Frankfurt, Geneva, London, Paris, Tokyo and
Zurich.
80 Transamerica Corporation and Subsidiaries