EXHIBIT EX-13
FINANCIAL REVIEW
Transamerica Corporation is a financial services organization which engages
through its subsidiaries in consumer lending, commercial lending, leasing,
life insurance, real estate services and asset management.
CONSOLIDATED RESULTS
Transamerica's net income for 1994 increased $49.8 million (13%) compared to
1993. Net income included after tax losses from discontinued operations of
$700,000 in 1994 and $47 million in 1993. For a discussion of Transamerica's
discontinued operations see Note J on page 79. Net income in 1993 also
included a $23.1 million extraordinary loss from early extinguishment of debt.
Transamerica's income from continuing operations for 1994 decreased $19.6
million (4%) compared to 1993. Income from continuing operations for 1994
included net after tax gains from investment transactions aggregating $15
million compared to $25.3 million in 1993. In 1994 operating income from
continuing operations, which excludes investment transactions, decreased $9.3
million (2%) from 1993 due primarily to decreases in real estate services and
asset management and consumer lending operating results and higher unallocated
expenses. Partially offsetting these declines were improvements in commercial
lending, life insurance and leasing operating results. Operating income from
continuing operations for 1993 included a $36 million after tax writedown of
repossessed rent-to-own rental 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 income tax rate increase. These items were
offset by a $94.2 million tax benefit from the satisfactory resolution of
prior years' tax matters. Excluding these 1993 items, operating income from
continuing operations for 1994 increased $15.8 million (4%).
Investment transactions in 1994 included after tax gains of $32.6 million
realized on the sale of investments, less the required accelerated
amortization of deferred policy acquisition costs associated with interest-
sensitive products of $4.1 million after tax and loss provisions of $13.5
million after tax for the impairment in value of investments. Investment
transactions in 1993 included after tax gains of $102.2 million realized on
the sale of investments, less accelerated amortization of deferred policy
acquisition costs
44 Transamerica Corporation and Subsidiaries
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.
Operating income from continuing operations increased $93.3 million (28%) 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, as a result of the 1993 items described on
page 44, consumer lending and leasing operating results. Excluding the 1993
items, adjusted operating income from continuing operations for 1993
increased $68.2 million (21%) compared to 1992.
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 except for share data) 1994 1993 1992
FINANCE
Consumer lending $ 90.4 $ 93.1 $101.2
Commercial lending 53.7 (4.0) 22.2
Leasing 63.6 53.6 58.1
Amortization of goodwill (13.0) (13.0) (13.0)
______ ______ ______
Total finance 194.7 129.7 168.5
LIFE INSURANCE 250.2 215.7 190.8
REAL ESTATE SERVICES AND ASSET MANAGEMENT 64.2 84.6 73.3
Amortization of goodwill (1.8) (1.7) (1.7)
______ ______ ______
Total real estate services and asset management 62.4 82.9 71.6
Unallocated interest and other expenses (94.4) (6.1) (102.0)
______ ______ ______
Operating income from continuing operations 412.9 422.2 328.9
Investment transactions 15.0 25.3 5.1
______ ______ ______
Income from continuing operations 427.9 447.5 334.0
Loss from discontinued operations (0.7) (47.0) (90.8)
Extraordinary loss on early extinguishment of debt (23.1)
______ ______ ______
Net income $427.2 $377.4 $243.2
====== ====== ======
EARNINGS PER SHARE OF COMMON STOCK
Income from continuing operations:
Operating income from continuing operations $ 5.25 $ 5.08 $ 3.94
Investment transactions 0.21 0.32 0.06
______ ______ ______
Income from continuing operations 5.46 5.40 4.00
Loss from discontinued operations (0.01) (0.60) (1.17)
Extraordinary loss on early extinguishment of debt (0.29)
______ ______ ______
Net income $ 5.45 $ 4.51 $ 2.83
====== ====== ======
Transamerica Corporation and Subsidiaries 45
TRANSAMERICA FINANCE GROUP
Transamerica Finance Group includes primarily Transamerica's consumer lending,
commercial lending and leasing operations and provides funding for these
operations. The principal assets of Transamerica Finance Group comprise
finance receivables and equipment held for lease totaling $9.6 billion at
December 31, 1994 and $7.8 billion at December 31, 1993. Transamerica Finance
Group's total notes and loans payable were $8.7 billion at December 31, 1994
and $7 billion at December 31, 1993. Variable rate debt was $4.3 billion at
December 31, 1994 compared to $4 billion at the end of 1993. The ratio of debt
to debt plus equity was 84.2% at December 31, 1994 and 82.2% at December 31,
1993.
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 $1,516 million in
1994, $407 million in 1993 and $538.7 million in 1992. Under a shelf
registration statement filed in July 1993 with the Securities and Exchange
Commission, the company may offer up to $2 billion of senior or subordinated
debt securities (which may include medium-term notes) with varying terms, of
which $337.2 million had not been issued at December 31, 1994.
During 1990, Transamerica Finance Group entered into a 5-year arrangement in
which it securitized a $375 million participation interest in a pool of its
insurance premium finance receivables. This securitization, which has been
accounted for as a sale, allowed Transamerica Finance Group to improve its
capital management and liquidity. Proceeds from this transaction were used
primarily to reduce debt. At December 31, 1994, $375 million of securitized
insurance premium finance receivables remained outstanding. The commercial
lending operation continues to service this portfolio and remains partially at
risk through limited recourse provisions.
Liquidity is a characteristic of these operations since the majority of the
assets consist of finance receivables. Principal cash collections of finance
receivables totaled $16.6 billion during 1994, $13.4 billion during 1993 and
$11.1 billion during 1992.
46 Transamerica Corporation and Subsidiaries
CONSUMER LENDING
Consumer lending net income for 1994 was $90.3 million compared to $93 million
for 1993. Consumer lending income before the amortization of goodwill in 1994
decreased $2.7 million (3%) from 1993. Excluding a $5.3 million benefit ($3.1
million after tax) recorded in 1993 from the reversal of reserves related to a
1990 securitization and sale of real estate secured receivables, income for
1994 increased $400,000 (-%). The increase resulted from higher revenues
offset in part by increased operating and interest expenses, and an increased
provision for losses on receivables. Revenues in 1994 increased $36.3 million
(6%) over 1993 mainly due to increased finance charges resulting from higher
average finance receivables outstanding and higher fees due to an increased
volume of real estate secured loans.
Interest expense for 1994 increased $8.5 million (3%) from 1993 mainly due to
an increase in short-term rates and the cost of increased borrowings as a
result of the higher level of receivables outstanding. Operating expenses for
1994 increased $20 million (11%) over 1993. Excluding the $5.3 million reserve
reversal recorded in 1993, operating expenses in 1994 increased $14.7 million
(8%). The increase was mainly due to the higher level of finance receivables
outstanding, an increase in the average number of branches during 1994, and
costs of developing new loan information systems to handle additional loan
products.
The provision for losses on receivables for 1994 increased $18.3 million (29%)
due to increased credit losses and increased growth in net finance
receivables over 1993. Credit losses, net of recoveries, as a percentage of
average consumer finance receivables outstanding, net of unearned finance
charges and insurance premiums, were 1.93% for 1994 compared to 1.68% for
1993. Credit losses increased in 1994 mainly due to continued sluggishness in
the California economy and a continued weak California real estate market. Any
change in the trend of credit losses is somewhat dependent upon overall
changes in economic conditions and the California real estate market. Although
recent trends in the economy are encouraging, the outlook for the California
real estate market remains uncertain, particularly in Southern California.
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 the $5.3 million benefit ($3.1 million
after tax) 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, which was
completed in 1994, of the securitized receivables and lower fees due to
reduced volume of real estate secured loans. 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. Operating expenses increased in 1993 mainly due to
investments in new branches and losses on the disposal of repossessed assets.
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 mainly due to continued sluggishness
in the domestic economy and a weak California real estate market.
Net consumer finance receivables outstanding increased $414.2 million (11%) in
1994 and $66.2 million (2%) in 1993.
Net consumer finance receivables at December 31, 1994 included $3.3 billion of
real estate
48 Transamerica Corporation and Subsidiaries
secured loans, principally first and second mortgages secured by residential
properties, of which 45% are located in California. Company policy generally
limits the amount of cash advanced on any one loan, plus any existing
mortgage, to between 70% and 80% (depending on location) of the appraised
value of the mortgaged property, as determined by qualified independent
appraisers at the time of loan origination.
Delinquent finance receivables, which are defined as receivables contractually
past due 60 days or more, were $90.2 million (2.08% of finance receivables
outstanding) at December 31, 1994 compared to $78.8 million (2.01% of finance
receivables outstanding) at December 31, 1993. The increase in the percentage
reflects higher delinquent non-real estate secured receivables offset in part
by a decline in the percentage of delinquent real estate secured receivables.
The increase in delinquent non-real estate secured receivables reflects the
changing mix of products offered and the introduction of new products with
higher delinquency experience. Management has established an allowance for
losses equal to 2.83% of net consumer finance receivables outstanding at
December 31, 1994 and 1993.
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 $226.1 million at December 31, 1994
compared to $214.7 million at December 31, 1993. The increase primarily
reflects higher inventory in California due to California's continuing weak
real estate market and resultant longer disposal times. Since future
improvement may be impacted by factors such as economic conditions and the
state of the real estate market, the extent and timing of any change in the
trend of foreclosures and repossessed assets remains uncertain.
Transamerica Corporation and Subsidiaries 49
COMMERCIAL LENDING
Commercial lending net income for 1994 was $42.8 million compared to a net
loss of $38 million for 1993. Commercial lending results, before the
amortization of goodwill and a $23.1 million after tax extraordinary loss on
early extinguishment of debt in 1993, increased $57.7 million over 1993.
Results for 1993 included: (i) 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; (ii) an $8.8 million after tax charge for the
restructuring of the commercial lending unit's infrastructure; (iii) a $4.2
million after tax provision for anticipated legal and other costs associated
with the runoff of the liquidating portfolios; (iv) a $4.2 million tax benefit
from the resolution of prior years' tax matters; and (v) a tax benefit of $1.4
million due to the one percent federal tax increase applied to deferred taxes.
Excluding these items and the 1993 extraordinary loss on early extinguishment
of debt, commercial lending income increased $14.3 million (36%) over 1993.
This improvement was primarily due to a lower provision for losses on
receivables and stronger margins during 1994. Stronger margins were a result
of the higher spread between the indices at which the commercial lending
operation lent to customers and the indices at which funds were borrowed.
Commercial lending results, before the extraordinary item and the amortization
of goodwill, were a loss of $4 million for 1993 compared to income of $22.2
million in 1992. Excluding the 1993 items discussed above, commercial lending
income, before the amortization of goodwill and extraordinary item, increased
$17.2 million (77%) in 1993 over 1992. This improvement was primarily due to
lower operating expenses, a lower provision for losses on receivables and
stronger margins. During 1993, the interest rates at which commercial lending
borrowed funds for its business had declined more quickly than the rates at
which it lent to its customers. As a result, margins were enhanced during the
declining rate environment in 1993.
Revenues in 1994 increased $13.6 million (4%) over 1993 as a result of
increased average net receivables in the core businesses and a higher average
portfolio yield attributable to rising interest rates. Revenues decreased
$22.1 million (6%) in 1993 from 1992 principally due to reduced yields
attributable to the low interest rate environment in 1993.
Interest expense increased $9.6 million (9%) in 1994 over 1993 due to a higher
average interest rate on borrowings. Interest expense in 1993 decreased $25.5
million (19%) compared to 1992 due to lower average interest rates.
Operating expenses in 1994 were $21.3 million (11%) lower than 1993 due to the
previously described 1993 restructuring charge and provision for anticipated
legal and other costs associated with the runoff of the liquidating
portfolios, aggregating $21.5 million ($13 million after tax). Expenses in
1994 included a $9 million ($5.5 million after tax) charge for the relocation
of the commercial lending home office, partially offset by the gain described
below on the sale of the repossessed rent-to-own stores. In 1994, the
commercial lending operation sold its U.S. and Canadian repossessed rent-to-
own stores with a net carrying value of $17.7 million for $23 million. The
transaction resulted in a $5.3 million ($4 million after tax) gain. Excluding
the items discussed above, operating expenses decreased $3.5 million (2%) in
1994 from 1993, primarily due to reduced expenses related to the management of
the liquidating portfolios.
Operating expenses in 1993 increased $11.2 million (6%) over 1992 due to the
$21.5 million of costs described above, partially offset by cost reduction
efforts in the core businesses. Excluding the $21.5 million, 1993 operating
expenses decreased $10.3 million (6%) compared to 1992. The provision for
losses on receivables in 1994 was $14.8 million (45%) less than in 1993 due to
lower credit losses and lower delinquent and nonearning receivables. The
provision for losses on receivables in 1993 was $8.7 million (21%) less than
in 1992 primarily due to lower credit losses in the liquidating portfolios.
Credit losses, net of recoveries, as a percentage of average commercial
finance receivables outstanding, net of unearned finance charges, were 0.29%
in 1994, 1.49% in 1993 and 4.18% in 1992.
50 Transamerica Corporation and Subsidiaries
Net commercial finance receivables outstanding increased $95.9 million (3%) in
1994 and $64.9 million (2%) in 1993. In the core businesses of inventory
finance, business credit and insurance premium finance, receivables increased
$139.4 million (5%) in 1994 and $136.1 million (5%) in 1993, which more than
offset the decline in the liquidating portfolios in both years. Management has
established an allowance for losses equal to 2.96% of net commercial finance
receivables outstanding at December 31, 1994 compared to 2.71% at December 31,
1993.
Delinquent receivables, which are defined as the instalment balance for
inventory finance and business credit receivables and the receivable balance
for all other receivables over 60 days past due, were $19.1 million (0.62% of
receivables outstanding) at December 31, 1994 compared to $28.9 million (0.96%
of receivables outstanding) at December 31, 1993.
Nonearning receivables, which are defined as balances from borrowers that are
over 90 days delinquent or at such earlier time as full collectibility becomes
doubtful, were $23.3 million (0.75% of receivables outstanding) at December
31, 1994 compared to $33.6 million (1.12% of receivables outstanding) at
December 31, 1993.
Assets held for sale at December 31, 1994 totaled $10.9 million, net of a
$65.1 million valuation allowance, and consisted of rent-to-own finance
receivables of $72.4 million and repossessed assets of $3.6 million. Assets
held for sale at December 31, 1993 totaled $90.1 million, net of a $157
million valuation allowance, and comprised 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. At December 31, 1994, $24.5 million of
the rent-to-own finance receivables were classified as both delinquent and
nonearning compared to $27.5 million at December 31, 1993.
Transamerica Corporation and Subsidiaries 51
LEASING
In March 1994, the leasing operation acquired substantially all the operating
assets of the Container Operations of Tiphook plc ("Tiphook"), a London-based
transportation equipment rental company, including certain dry cargo
containers, tank containers, tank chassis, operating leases and other assets
(collectively the "Container Operations") for $1,061.4 million in cash. The
leasing operation assumed certain specified liabilities of the Container
Operations including trade accounts payable. The leasing operation did not
assume any borrowings, tax liabilities or contingent liabilities of Tiphook.
The acquired fleet of standard containers and tank containers totaled 363,000
units which have been integrated into the leasing operation. The transaction
has been accounted for as a purchase and the revenues and expenses associated
with operating the assets acquired have been included in the results of the
leasing operation from the date of acquisition. This acquisition is the
primary reason revenues and expenses increased by more than 50% in 1994.
Leasing net income for 1994 was $61.6 million compared to $51.6 million for
1993. Leasing income, before the amortization of goodwill, for 1994 increased
$10 million (18%) and decreased $4.5 million (8%) in 1993. Included in the
1993 results was a $4.3 million tax provision for the revaluation of the
deferred tax liability. Excluding the effect of this adjustment, leasing
income increased $5.7 million (10%) in 1994 compared to 1993. The increase was
primarily due to a larger fleet size, more on-hire rail trailer and chassis
units and an increased finance lease portfolio, partially offset by lower
utilization and rates in the standard container line. Excluding the additional
tax provision, results for 1993 were comparable to 1992 as higher fleet
utilization and per diem rates in the rail trailer
52 Transamerica Corporation and Subsidiaries
business, a larger finance lease portfolio and a larger fleet of refrigerated
containers were offset by a decline in standard container utilization.
In 1994 and 1993, the leasing operation experienced higher utilization rates
for rail trailer and chassis due to improved economic conditions in the U.S.,
however, the standard container line experienced lower utilization rates due
to slow economic growth in some key European economies and Japan.
Revenues for 1994 increased $230.1 million (56%) over 1993. The increase was
due primarily to the acquisition of the Container Operations. Revenue
increases were also generated by a larger fleet of new standard and
refrigerated containers, more on-hire rail trailer and chassis units and
a larger finance lease portfolio.
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 rental rates
in the rail trailer business, an increased finance lease portfolio, and a
larger fleet of standard containers, refrigerated containers and European
trailers.
Expenses increased $219.6 million (70%) in 1994 over 1993 mainly due to higher
depreciation expense, interest expense and operating costs related to the
acquisition of the Container Operations.
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.
The combined utilization of standard containers, refrigerated containers,
domestic containers, tank containers and chassis averaged 81% in 1994, 83% in
1993 and 85% in 1992. Rail trailer utilization was 92% in 1994, 91% in 1993
and 84% in 1992. European trailer utilization was 96% in 1994, 89% in 1993 and
84% in 1992.
The company's standard container, refrigerated container, domestic container,
tank container and chassis fleet of 685,400 units increased by 369,400 units
(117%) in 1994, largely due to the acquisition of the Container Operations,
and 36,000 units (13%) in 1993. The rail trailer fleet of 39,300 units
increased by 2,800 units (8%) in 1994 and 2,100 units (6%) in 1993. The
company also operates a fleet of 5,700 over-the-road trailers in Europe.
Transamerica Corporation and Subsidiaries 53
LIFE INSURANCE
Transamerica's life insurance operation, principally through its subsidiaries,
Transamerica Occidental Life Insurance Company, Transamerica Life Insurance
and Annuity Company, First Transamerica Life Insurance Company, Transamerica
Life Insurance Company of Canada and Transamerica Assurance Company, engages
in the underwriting, distribution and reinsurance of investment based and
traditional life insurance products.
Net income increased $19 million (8%) in 1994 and $49.1 million (25%) in 1993.
Net income included net after tax gains from investment transactions totaling
$13.7 million in 1994, $29.2 million in 1993 and $5.1 million in 1992. Income
before investment transactions increased $34.5 million (16%) in 1994 and $24.9
million (13%) in 1993. The individual life insurance, structured settlements,
living benefits, group pension, reinsurance and foreign lines all experienced
increases in income in 1994, excluding net gains from investment transactions,
resulting primarily from maintained interest spreads on a larger asset base,
increased charges on a larger base of interest-sensitive policies and
controlled operating expenses. Income before investment transactions for 1993
also included a $3.6 million charge for the effect of the one percent increase
in the federal income tax rate on the deferred tax liability.
Investment transactions for 1994 included after tax gains of $27.6 million
realized on the sale of investments compared to $106.1 million for 1993. As
required by generally accepted accounting principles, the amortization of
deferred policy acquisition costs was accelerated due to the investment gains
by $4.1 million in 1994 compared to $40.8 million in 1993. The accelerated
amortization of deferred policy acquisition costs has been included in
investment transactions as an offset to the related gain. Investment
transactions also reflected loss provisions of $9.8 million in 1994 and $36.1
million in 1993 primarily for impairment in the value of certain nonperforming
fixed maturity investments.
Premiums and other income increased $239.5 million (19%) in 1994 and $73.3
million (6%) in 1993 primarily due to higher sales of annuity products, an
increase in reinsurance assumed and an increase in charges on interest-
sensitive policies.
In November 1994, the life insurance operation sold its interest in Osborn
Laboratories, a business providing medical testing for life insurance
companies, for gross proceeds of $23.3 million. The transaction resulted in an
after tax gain of $8.6 million which is included in income before investment
transactions. Offsetting this gain were after tax charges of $9.9 million
($15.2 million pretax) primarily attributable to anticipated guaranty fund
assessments and a loss related to the 1991 sale of a business unit.
Net investment income increased $47.6 million (3%) in 1994 and $148.1 million
(9%) in 1993 due primarily to increased investments. Net investment income
includes $1.1 million in 1994, $55.7 million in 1993 and $9.4 million in 1992
related to the accelerated accretion of discounts on securities called or
expected to be called. Investment income for 1993 also included a $4.7 million
reversal of accrued investment income on defaulted securities. Partially
offsetting the accelerated accretion of bond discounts were charges of $19.8
million in 1993 and $9.2 million in 1992, which are included in other expenses
and are 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.
Life insurance benefits and expenses increased $240.7 million (9%) in 1994 and
$168.5 million (7%) in 1993 principally due to increases in policy reserves
and benefits paid or provided attributable to the larger base of life
insurance and annuities in force, higher commission expense on increased life
insurance premiums and annuity considerations, and higher amortization of
deferred policy acquisition costs (exclusive of accelerated amortization
related to investment gains). As previously discussed, other expenses included
charges of $15.2 million in 1994, $19.8 million in 1993 and $9.2 million in
1992 related to anticipated guaranty fund assessments, additional losses on
the 1991 sale of a business unit and expenses for the realignment and
relocation of certain back office support functions.
Cash provided by operations for 1994 was $498 million which was $106.3 million
(18%) below the 1993 amount primarily as a result of the timing in the
settlement of certain receivables and payables, including reinsurance
receivables and payables. The life insurance operation continues to maintain a
sufficiently liquid portfolio to cover its operating requirements, with
remaining funds being invested in longer term securities.
54 Transamerica Corporation and Subsidiaries
REAL ESTATE SERVICES AND ASSET MANAGEMENT
Real estate services comprise Transamerica's real estate tax, property
management, and other related services.
The real estate services' operations net income for 1994 was $55.8 million
compared to $84.2 million in 1993. Income before goodwill amortization
decreased $28.4 million (34%) in 1994 primarily due to a significant decline
in real estate tax service revenues caused by lower mortgage refinancings
resulting from higher interest rates. Income from the real estate services'
operations increased $11.1 million (15%) in 1993, due principally to increased
real estate tax service revenues from continued high levels of mortgage
refinancings resulting from lower 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
$74.1 million at December 31, 1994 and $115.6 million at December 31, 1993,
are the real estate services' operations principal sources of liquidity.
Asset management in 1994 consisted of Criterion Investment Management Company
(Criterion) and, through the date of its sale, Transamerica Fund Management
Company. On December 21, 1994, Transamerica Fund Management Company was sold
for $100 million resulting in a $4.9 million after tax gain. Asset
management's net income for 1994 was $6.6 million compared to net losses of
$1.3 million for 1993 and $1.6 million for 1992. Operating results, before
goodwill amortization, for 1994, 1993 and 1992 were income of $8.3 million,
$300,000 and $100,000. The 1994 improvement was due primarily to the $4.9
million gain on sale of Transamerica Fund Management Company and lower
operating expenses within the mutual fund business. The 1993 improvement was
primarily due to higher revenues from increased assets under management. The
principal business of Criterion is serving as investment advisor to public and
private retirement funds. At December 31, 1994 Criterion had $10 billion under
management.
56 Transamerica Corporation and Subsidiaries
UNALLOCATED INTEREST AND OTHER EXPENSES
Unallocated costs, after related income taxes, are summarized as follows:
____________________________________________________________________________
(Amounts in millions) 1994 1993 1992
Interest expense $ 50.2 $ 54.1 $ 61.5
Other expenses (income) 44.2 (48.0) 40.5
______ ______ ______
$ 94.4 $ 6.1 $102.0
====== ====== ======
Interest expense, after related income taxes, decreased $3.9 million (7%) in
1994 and $7.4 million (12%) in 1993 due to a lower level of borrowings and
lower average interest rates. The lower borrowing level in 1994 was primarily
due to the repayment of debt with proceeds from the 1993 sale of the
discontinued property and casualty insurance operation and the sale of
Transamerica's investment in Sedgwick Group plc in April 1994.
Other expenses, after related income taxes, in 1993 included a tax benefit of
$90 million for the reversal of certain tax reserves, offset in part by 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 and a $3.8 million revaluation
of the deferred tax liability. Excluding these items, other expenses increased
$13 million (41%) in 1994 and decreased $9.3 million (23%) in 1993. The 1994
increase was primarily due to higher costs, principally salary and benefits,
as a result of centralizing certain administrative functions. The 1993
decrease was primarily due to lower salary and benefits expense.
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, 1994, Transamerica and its subsidiaries had short-term
borrowings, principally commercial paper, totaling $4.5 billion, supported by
credit agreements with 61 banks. It is the policy of the Corporation to
maintain credit line coverage at least equal to 100%
58 Transamerica Corporation and Subsidiaries
of short-term borrowings. Availability under such lines at December 31, 1994,
amounted to $4.7 billion or 104% of these borrowings; credit support equal to
67% of the borrowings was with banks rated AAA/AA or the equivalent by one or
more of the major credit rating agencies.
The Corporation has established a program to offer publicly, from time to
time, $200 million of its Medium-Term Notes, Series B, pursuant to a shelf
registration filed 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 issued. 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.
As previously discussed, in March 1994, Transamerica acquired substantially
all the operating assets of the Container Operations of Tiphook plc, a London-
based transportation equipment rental company, for $1,061.4 million in cash.
The initial financing of the acquisition was provided through short-term bank
loans which have been repaid and refinanced with long-term debt.
In April 1994, Transamerica sold its remaining 21% ownership interest in
Sedgwick Group plc. Proceeds from the sale were $326.4 million which were used
by Transamerica to purchase 4.5 million shares of its common stock (see
following section) and reduce debt.
In December 1994, Transamerica sold its former mutual fund subsidiary,
Transamerica Fund Management Company. Proceeds from the sale were $100 million
and were used by Transamerica to reduce debt.
In 1993, the Corporation sold 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 and issuance costs, 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 common stock purchase program.
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.
Transamerica Corporation and Subsidiaries 59
SHAREHOLDERS' EQUITY
In June 1994, Transamerica completed a "Dutch Auction" tender offer to
purchase 4.5 million shares of its common stock, at a price of $54.75 per
share. Transamerica used a portion of the net proceeds from the sale of its
remaining 21% ownership interest in Sedgwick Group plc to purchase these
shares.
In September 1994, Transamerica announced a program to purchase up to an
additional 2 million shares of the Corporation's common stock of which
1.1 million shares were acquired by December 31, 1994. As a result of this
program, the Dutch Auction tender and the purchase of 5.1 million shares
beginning in 1993 under two previously announced share purchase programs, the
number of common shares outstanding at December 31, 1994 was 69.4 million
compared to 76.4 million at December 31, 1993 and 79.2 million at December 31,
1992.
In October 1994, Transamerica Delaware, LP, an affiliate of Transamerica,
issued $200 million of 9.125% cumulative Monthly Income Preferred Securities
(MIPS). Proceeds from the issuance were invested by the affiliate in Series A
Subordinated Debentures issued by Transamerica, bearing interest at 9.125% and
maturing October 25, 2024. Proceeds to Transamerica were used for general
corporate purposes, including the repayment or redemption of other of its
securities. The MIPS obligation outstanding is shown as minority interest in
the consolidated balance sheet of Transamerica and its subsidiaries.
In November 1994, Transamerica completed a tender offer to redeem for cash 4.4
million depositary shares of its 8.5% Series D Preferred Stock at a price of
$26 per depositary share. As a result of the tender offer, $6.7 million of
premium and expenses related to the transaction was charged directly to
shareholders' equity and resulted in a 9 cent reduction in 1994 earnings per
share.
INVESTMENT PORTFOLIO
Transamerica, principally through its life insurance subsidiaries, maintains
an investment portfolio aggregating $22.5 billion at December 31, 1994, of
which $21 billion was invested in fixed maturities. At December 31, 1994, 96%
of the fixed maturities was rated as "investment grade," with an additional
2.9% in the BB category or its equivalent. "Investment grade" is generally
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 amortized cost
of fixed maturities was $21.9 billion resulting in a net unrealized loss
position, before the effects of income taxes, of $911 million at December 31,
1994. Fixed maturity investments are generally held for long-term investment
and used primarily to support insurance reserves. The amortized cost of
delinquent below investment grade securities before provision for impairment
in value was $12.4 million at December 31, 1994
60 Transamerica Corporation and Subsidiaries
compared to $31.1 million at December 31, 1993. Provision for impairment in
value has been made to reduce certain fixed maturity investments by $92.1
million at December 31, 1994 and $104 million at December 31, 1993.
In 1994, Transamerica adopted Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities.
Beginning in 1994 with the adoption of this standard, all of Transamerica's
investments in debt securities and equity securities have been classified as
available for sale and reported at fair value. To the extent the securities
marked to fair value relate to interest-sensitive insurance products an
adjustment to deferred policy acquisition costs is also made. The effect of
these adjustments, net of federal income taxes, is recorded in a separate
component of shareholders' equity. There is no effect on the income statement.
Prior to 1994 only those fixed maturity investments which were expected to be
called by the issuer or sold in connection with Transamerica's portfolio
management strategies in the next three months were classified as investments
available for sale and carried at the lower of amortized cost or fair value.
At December 31, 1993, $872.4 million of fixed maturities were classified as
investments available for sale and were carried at amortized cost which was
less than fair value.
The net unrealized gain/loss from investments marked to fair value, after
related taxes and deferred policy acquisition cost adjustments, which is
included in shareholders' equity was a loss of $265.1 million at December 31,
1994. As discussed in the preceding paragraph, Transamerica in 1994 adopted
Statement of Financial Accounting Standards No. 115. Accordingly, changes in
shareholders' equity caused by changes in the fair value of the investment
portfolio in 1994 and 1993 are not comparable because in 1993 investments in
fixed maturities were carried at amortized cost.
In addition to the investments in fixed maturities, $455.5 million (2% of the
investment portfolio) was invested in mortgage loans and real estate including
$369.6 million in commercial mortgage loans, $105.3 million in real estate
investments, $22.3 million in foreclosed real estate and $8 million in
residential mortgage loans. Problem loans, defined as restructured loans
yielding less than 8% and delinquent loans, totaled $7.7 million at December
31, 1994 and $18.5 million at December 31, 1993. Allowances for possible
losses of $49.7 million at December 31, 1994 and $70.7 million at December 31,
1993 have been established to cover the possible losses from mortgage loans
and real estate investments.
Transamerica Corporation and Subsidiaries 61
CONSOLIDATED BALANCE SHEET
_____________________________________________________________________________
December 31 1994 1993
ASSETS
Investments, principally of life insurance
subsidiaries:
Fixed maturities $21,037.0 $19,425.4
Mortgage loans and real estate 455.5 493.0
Equity securities 427.2 466.1
Loans to life insurance policyholders 412.9 396.5
Short-term investments 163.7 190.8
_________ _________
22,496.3 20,971.8
Finance receivables, of which $3,460.1 in 1994
and $3,023.9 in 1993 matures within one year 7,426.1 6,908.5
Less unearned fees ($248.2 in 1994 and $240.8 in
1993) and allowance for losses 455.2 426.0
_________ _________
6,970.9 6,482.5
Cash and cash equivalents 64.3 92.7
Trade and other accounts receivable 2,610.3 2,015.4
Property and equipment, less accumulated
depreciation of $974.9 in 1994 and $831.6 in
1993:
Land, buildings and equipment 360.7 345.7
Equipment held for lease 2,606.6 1,306.5
Deferred policy acquisition costs 2,480.5 1,929.3
Separate accounts administered by life
insurance subsidiaries 1,666.5 1,366.5
Net assets of discontinued operations 310.2
Goodwill, less accumulated amortization of
$123.2 in 1994 and $113.4 in 1993 443.7 495.4
Other assets 694.0 734.5
_________ _________
$40,393.8 $36,050.5
========= =========
(Amounts in millions except for share data)
See notes to financial statements
62 Transamerica Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET (CONTINUED)
_____________________________________________________________________________
December 31 1994 1993
LIABILITIES AND SHAREHOLDERS' EQUITY
Life insurance policy liabilities $24,731.7 $21,951.8
Notes and loans payable, principally of
finance subsidiaries, of which $1,684 in 1994 and
$2,023 in 1993 matures within one year 9,173.1 7,704.0
Accounts payable and other liabilities 1,627.5 1,352.4
Income taxes, of which $6.6 in 1994 and $301.4 in
1993 is deferred 259.2 312.3
Separate account liabilities 1,666.5 1,366.5
Minority interest in preferred securities
of affiliate 200.0
Shareholders' equity:
Preferred stock ($100 par value):
Authorized-1,200,000 shares; issuable in series
Outstanding-Dutch Auction Rate Transferable
Securities, 2,250 shares, at liquidation
preference of $100,000 per share 225.0 225.0
Outstanding-Series D, 181,642 shares in 1994
and 400,000 shares in 1993 at liquidation
preference of $500 per share 90.8 200.0
Common stock ($1 par value):
Authorized-150,000,000 shares
Outstanding-69,395,099 shares in 1994 and
76,398,888 shares in 1993, after deducting
10,343,363 and 3,339,574 shares in treasury
in 1994 and 1993 69.4 76.4
Additional paid-in capital 96.5 475.2
Retained earnings 2,557.4 2,297.9
Net unrealized gain (loss) from investments
marked to fair value (265.1) 124.1
Foreign currency translation adjustments (38.2) (35.1)
_________ _________
2,735.8 3,363.5
_________ _________
$40,393.8 $36,050.5
========= =========
Transamerica Corporation and Subsidiaries 63
CONSOLIDATED STATEMENT OF INCOME
____________________________________________________________________________
Year ended December 31 1994 1993 1992
REVENUES
Life insurance premiums and related income $1,495.2 $1,255.7 $1,182.3
Investment income 1,782.6 1,749.9 1,600.0
Finance charges and other fees 1,041.6 990.1 1,013.9
Leasing revenues 620.7 388.3 402.2
Real estate and tax service revenues 256.0 293.3 249.6
Gain on investment transactions 23.1 39.0 7.7
Other 135.3 97.0 95.2
________ ________ ________
5,354.5 4,813.3 4,550.9
EXPENSES
Life insurance benefits 2,356.4 2,145.9 2,059.2
Life insurance underwriting, acquisition
and other expenses 530.0 499.8 418.0
Leasing operating and maintenance costs 323.6 184.4 198.0
Interest and debt expense 573.7 511.6 568.9
Provision for losses on receivables and
assets held for sale 100.6 147.0 90.7
Other, including administrative and
general expenses 779.9 736.5 677.7
________ ________ ________
4,664.2 4,225.2 4,012.5
________ ________ ________
690.3 588.1 538.4
Income taxes 262.4 140.6 204.4
________ ________ ________
Income from continuing operations 427.9 447.5 334.0
Loss from discontinued operations (0.7) (47.0) (90.8)
Extraordinary loss on early
extinguishment of debt (23.1)
________ ________ ________
Net income $ 427.2 $ 377.4 $ 243.2
======== ======== ========
EARNINGS PER SHARE OF COMMON STOCK
Income from continuing operations $ 5.46 $ 5.40 $ 4.00
Loss from discontinued operations (0.01) (0.60) (1.17)
Extraordinary loss on early
extinguishment of debt (0.29)
________ ________ ________
Net income $ 5.45 $ 4.51 $ 2.83
======== ======== ========
(Amounts in millions except for share data)
See notes to financial statements
64 Transamerica Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
____________________________________________________________________________
Year ended December 31 1994 1993 1992
OPERATING ACTIVITIES
Income from continuing operations $ 427.9 $ 447.5 $ 334.0
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 813.8 927.3 912.5
Amortization of policy acquisition
costs 182.3 232.7 135.3
Policy acquisition costs deferred (394.9) (350.0) (256.3)
Depreciation and amortization 263.2 159.8 150.7
Other 81.6 (327.8) (277.4)
_________ _________ _________
Net cash provided by continuing
operations 1,373.9 1,089.5 998.8
INVESTING ACTIVITIES
Finance receivables originated (17,277.1) (13,664.0) (11,388.0)
Finance receivables collected 16,639.5 13,375.2 11,121.9
Purchase of investments (9,656.4) (12,102.5) (6,527.2)
Sales and maturities of investments 7,151.4 9,647.5 5,090.7
Purchase of the container division
assets of Tiphook plc (1,061.4)
Proceeds from sale of discontinued
operations 326.4 1,031.8
Cash transactions with discontinued
operations 5.4 (399.3) 47.4
Other (506.3) (475.5) (157.0)
_________ _________ _________
Net cash used by investing activities (4,378.5) (2,586.8) (1,812.2)
FINANCING ACTIVITIES
Proceeds from debt financing 7,197.6 5,308.2 4,100.9
Payments of notes and loans (5,766.2) (5,239.5) (4,276.4)
Receipts from interest-sensitive
policies credited to policyholder
account balances 4,434.7 4,166.3 2,572.0
Return of policyholder balances on
interest-sensitive policies (2,419.9) (2,313.2) (1,688.5)
Proceeds from sale of preferred stock 193.2
Proceeds from sale of preferred
securities of affiliate 192.6
Redemption of preferred stock (115.9)
Treasury stock purchases (387.0) (207.6)
Other common stock transactions 8.0 33.5 70.3
Dividends (167.7) (179.7) (178.6)
_________ _________ _________
Net cash provided by financing
activities 2,976.2 1,568.0 792.9
_________ _________ _________
Increase (decrease) in cash and
cash equivalents (28.4) 70.7 (20.5)
Cash and cash equivalents at beginning
of year 92.7 22.0 42.5
_________ _________ _________
Cash and cash equivalents at end of year $ 64.3 $ 92.7 $ 22.0
========= ========= =========
(Amounts in millions)
See notes to financial statements
Transamerica Corporation and Subsidiaries 65
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
___________________________________________________________________________________________________________
Net Unrealized
Gain (Loss) from Foreign
Additional Investments Currency
Preferred Common Paid-in Retained Marked Translation
Stock Stock Capital Earnings to Fair Value Adjustments
BALANCE AT JANUARY 1, 1992 $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)
Effect of adopting Statement
of Financial Accounting
Standards No. 115 804.5
Net income 427.2
Dividends declared:
On common stock (142.8)
On preferred stock (24.9)
Common stock issued 0.2 7.8
Treasury stock purchased (7.2) (379.8)
Redemption of preferred stock (109.2) (6.7)
Other changes (1,193.7) (3.1)
______ _____ ______ ________ ________ ______
BALANCE AT DECEMBER 31, 1994 $315.8 $69.4 $ 96.5 $2,557.4 $ (265.1) $(38.2)
====== ===== ====== ======== ======== ======
<FN>
(Amounts in millions)
See notes to financial statements
66 Transamerica Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS December 31, 1994
_____________________________________________________________________________
[A] SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Transamerica
Corporation and its subsidiaries.
INVESTMENTS
As discussed further under New Accounting Standards, investments in fixed
maturities, comprising bonds, notes and redeemable preferred stocks, are
carried at fair value in 1994 and amortized cost in 1993. Prior to 1994 those
fixed maturity investments which were expected to be called by the issuer or
sold in connection with Transamerica's portfolio management strategies in the
next three months were classified as investments available for sale and
carried at the lower of amortized cost or fair value. At December 31, 1993,
$872.4 million of fixed maturities were classified as investments available
for sale and were carried at amortized cost which was less than fair value.
Fair value for actively traded securities is based on quoted market prices.
For fixed maturity securities not actively traded, including private
placements, fair value is estimated using values obtained from independent
pricing services. Changes to the carrying amount of securities available for
sale 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.
Leasing revenues are recognized as rentals become due.
REAL ESTATE
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.
Asset management and advisory fees are recorded in revenue during the period
such services are performed.
LIFE 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.
Transamerica Corporation and Subsidiaries 67
[A] SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LIFE INSURANCE (CONTINUED)
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. 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.
Deferred policy acquisition costs for universal life and other interest-
sensitive life insurance products are amortized in proportion to the present
value of gross profit. Deferred policy acquisition costs for traditional life
insurance products are amortized over the premium-paying period of the related
policies in proportion to premium revenue recognized. Adequate provision is
made for reported and unreported claims and related expenses.
NEW ACCOUNTING STANDARDS
In 1994, Transamerica adopted the Financial Accounting Standards Board's new
standard on accounting for certain investments in debt and equity securities.
Beginning in 1994 with the adoption of this standard, all of Transamerica's
investments in debt securities have been classified as available for sale and
reported at fair value. To the extent the securities marked to fair value
relate to interest-sensitive products, an adjustment to deferred policy
acquisition costs is also made. The effect of these adjustments, net of
federal income taxes, is recorded in a separate component of shareholders'
equity. There is no effect on the income statement.
In May 1993, the Financial Accounting Standards Board issued a new standard on
accounting for impairment of loans which Transamerica will adopt in the first
quarter of 1995. The new standard, which was amended in October 1994,
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. At adoption, the new standard will not have a
material effect on the consolidated financial statements of Transamerica.
EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of common stock are based on the weighted average number of
shares outstanding (72,592,000 in 1994, 78,495,000 in 1993 and 78,050,000 in
1992) after deduction of preferred dividends and, in 1994, premium and
expenses of $6.7 million on the redemption of the Series D preferred stock.
68 Transamerica Corporation and Subsidiaries
[B] MINORITY INTEREST
In October 1994, Transamerica Delaware, LP, an affiliate of Transamerica,
issued $200 million of 9.125% cumulative Monthly Income Preferred Securities
(MIPS) payable October 25, 2024. This obligation represents a minority
interest in Transamerica. The affiliate may redeem the outstanding MIPS, in
whole or in part, on or after October 25, 1999. Interest on the outstanding
MIPS is cumulative and payable monthly in arrears.
[C] STOCK OPTION PLANS
At December 31, 1994, under Transamerica's stock option plans, 11,457,178
shares of common stock (11,660,839 shares at December 31, 1993) were reserved
principally for sale to key employees of the Corporation and subsidiaries at
market value on the date options are granted. During 1994, options for
1,549,850 shares were granted, and options for 233,600 shares were cancelled
due to forfeiture. Options were exercised for 194,823 shares in 1994,
1,019,081 shares in 1993 and 1,567,553 shares in 1992, at aggregate option
prices of $7 million, $36 million and $52.1 million. Of the options for
6,678,524 shares outstanding at December 31, 1994 (5,557,097 shares at
December 31, 1993) at an aggregate option price of $286.8 million, options for
3,311,226 shares were exercisable. In February 1995, options for 1,215,300
shares were granted at an option price equal to market value on the date
granted.
Additionally, the Board of Directors on January 26, 1995 unanimously approved,
subject to stockholder approval, the 1995 Performance Stock Option Plan, and,
under the terms of the Plan made three separate, one-time grants of
nonqualified stock options totaling 5,000,000 shares. Options for 1,025,000
shares were granted at an exercise price of $60 per share, which vest ratably
on the third, fourth and fifth anniversaries of the date of grant. Options for
1,325,000 shares were granted with an exercise price of $82 per share, all of
which will be forfeited if the Corporation's common stock does not reach $82
within five years from the date of grant. Options for 2,650,000 shares were
granted with an exercise price of $100, all of which will be forfeited if the
Corporation's common stock does not reach $100 within seven years from the
date of grant.
[D] 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 and are based on par value, are normally determined every 49 days
through auction procedures. The dividend rates for Series A-1, B-1 and C-1
shares were 5.00%, 4.69% and 4.59% at December 31, 1994 and 3.15%, 2.90% and
3.09% at December 31, 1993.
Transamerica also has outstanding 3,632,827 Depositary shares at December 31,
1994 and 8,000,000 Depositary shares at December 31, 1993 each representing a
1/20 interest in a share of its Series D Preferred Stock ($100 par value, $500
liquidation preference). 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, 1994, 5,000,000 shares of preference stock (without par value)
were authorized but unissued.
Transamerica Corporation and Subsidiaries 69
[E] FINANCIAL INSTRUMENTS
INVESTMENTS
In 1994 investments in fixed maturities are carried at fair value, while in
1993 these investments were carried at amortized cost. The cost and fair value
of fixed maturities and equity securities at December 31, 1994 and 1993 are as
follows:
___________________________________________________________________________________________________________
(Amounts in millions) Gross Gross
Unrealized Unrealized
Cost Gains Losses Fair Value
DECEMBER 31, 1994
U.S. Treasury securities and obligations of
U.S. government authorities and agencies $ 224.1 $ 0.7 $ 20.2 $ 204.6
Obligations of states and political subdivisions 341.9 3.6 10.0 335.5
Foreign governments 211.4 1.6 6.4 206.6
Corporate securities 9,384.4 134.1 398.9 9,119.6
Mortgage-backed securities 7,792.5 105.2 530.3 7,367.4
Public utilities 3,990.1 48.6 238.5 3,800.2
Redeemable preferred stock 3.6 0.5 3.1
_________ ________ ________ _________
Total fixed maturities $21,948.0 $ 293.8 $1,204.8 $21,037.0
========= ======== ======== =========
Equity securities $ 275.4 $ 167.2 $ 15.4 $ 427.2
========= ======== ======== =========
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 181.9 19.6 0.2 201.3
Foreign governments 148.5 12.6 161.1
Corporate securities 6,846.9 751.3 18.6 7,579.6
Mortgage-backed securities 8,571.2 571.2 24.4 9,118.0
Public utilities 3,467.8 287.4 8.4 3,746.8
Redeemable preferred stock 3.8 0.2 3.6
_________ ________ ________ _________
Total fixed maturities $19,425.4 $1,657.4 $ 52.6 $21,030.2
========= ======== ======== =========
Equity securities $ 275.1 $ 194.5 $ 3.5 $ 466.1
========= ======== ======== =========
The cost and fair value of fixed maturities at December 31, 1994 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) Cost Fair Value
Due in one year or less $ 338.0 $ 336.7
Due after one year through five years 2,071.2 2,042.0
Due after five years through ten years 2,656.5 2,562.1
Due after ten years 9,089.8 8,728.8
_________ _________
14,155.5 13,669.6
Mortgage-backed securities 7,792.5 7,367.4
_________ _________
$21,948.0 $21,037.0
========= =========
70 Transamerica Corporation and Subsidiaries
[E] FINANCIAL INSTRUMENTS (CONTINUED)
INVESTMENTS (CONTINUED)
The carrying values and estimated fair values of investments in mortgage loans
on real estate and loans to life insurance policyholders at December 31, 1994
and 1993 are as follows:
______________________________________________________________________________
(Amounts in millions) Carrying Estimated
Value Fair Value
DECEMBER 31, 1994
Mortgage loans on real estate $354.1 $369.0
====== ======
Loans to life insurance policyholders $412.9 $383.5
====== ======
DECEMBER 31, 1993
Mortgage loans on real estate $368.9 $402.4
====== ======
Loans to life insurance policyholders $396.5 $373.1
====== ======
The fair values for mortgage loans on real estate and policyholder loans are
estimated using discounted cash flow calculations, based on interest rates
currently being offered for similar loans to borrowers with similar credit
ratings. Loans with similar characteristics are aggregated for calculation
purposes.
Gain on investment transactions, included in consolidated revenues, comprises:
______________________________________________________________________________
(Amounts in millions) 1994 1993 1992
Net gain on sale of investments $ 50.1 $157.3 $136.1
Provision for impairment in value (20.7) (55.5) (95.2)
Accelerated amortization of deferred policy
acquisition costs (6.3) (62.8) (33.2)
______ ______ ______
$ 23.1 $ 39.0 $ 7.7
====== ====== ======
Proceeds from sales of fixed maturities and equity securities were $2.7
billion in 1994, $5.2 billion in 1993 and $2.7 billion in 1992. Gross gains of
$107.5 million in 1994, $325.3 million in 1993 and $196.6 million in 1992,
and gross losses of $67.5 million in 1994, $163.6 million in 1993 and $76.3
million in 1992 were realized on those sales.
Transamerica and its subsidiaries use interest rate exchange and other
agreements to hedge the interest rate sensitivity of their fixed maturity
investments.
The net unrealized gain (loss) included in shareholders' equity as a result of
marking the fixed maturities and equity securities to fair value at December
31, 1994 and 1993 are as follows:
______________________________________________________________________________
(Amounts in millions) 1994 1993
Net unrealized gain on equity securities $ 151.8 $191.0
Net unrealized loss on investments in fixed maturities (911.0)
Adjustment to deferred policy acquisition costs 351.3
Deferred income taxes 142.8 (66.9)
_______ ______
$(265.1) $124.1
======= ======
Transamerica Corporation and Subsidiaries 71
[E] FINANCIAL INSTRUMENTS (CONTINUED)
NOTES AND LOANS PAYABLE
_____________________________________________________________________________
(Amounts in millions) 1994 1993
TRANSAMERICA FINANCE GROUP, INC.:
Short-term bank loans, commercial paper and current
portion of long-term debt $1,387.1 $1,910.8
Long-term debt due subsequent to one year:
Notes and debentures; interest at 5.32% to 9.1%;
maturing through 2004 2,477.3 1,618.6
Notes and debentures; interest at 13.80% to 13.88%;
maturity value of $582.8 million; maturing
through 2012 154.2 146.8
Commercial paper and other notes at various interest
rates and terms supported by credit agreements
expiring through 1999 3,672.5 2,505.0
Subordinated notes and debentures; interest at
6.75% to 8.13%; maturing through 2003 841.2 582.8
Loans due to parent company and other subsidiaries 192.0 267.5
________ ________
8,724.3 7,031.5
PARENT COMPANY AND OTHER SUBSIDIARIES:
Short-term bank loans, commercial paper and current
portion of long-term debt 296.9 112.2
Long-term debt due subsequent to one year:
Notes and debentures; interest at 7.1% to 10%;
maturing through 2007 252.8 458.6
Commercial paper and other notes at various interest
rates and terms supported by credit agreements
expiring through 1996 254.5
Notes at variable interest rates; maturing
through 1998 91.1 114.7
Less loans to Transamerica Finance Group, Inc. (192.0) (267.5)
________ ________
448.8 672.5
________ ________
$9,173.1 $7,704.0
======== ========
The weighted average interest rate on short-term borrowings at December 31,
1994 and 1993 was 5.81% and 3.17%.
Assets with a net book value of $285.8 million at December 31, 1994,
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,
1995 are $1.5 billion in 1996, $3.1 billion in 1997, $0.6 billion in 1998 and
$1.5 billion in 1999.
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.
Under credit agreements with various banks, Transamerica and its subsidiaries
had the ability to borrow up to $4.7 billion with interest at variable rates
at December 31, 1994. There was $62 million outstanding under these credit
lines at that date. These credit agreements, which expire through 1999,
require a fee on the commitment.
Transamerica and its subsidiaries use interest rate exchange agreements to
hedge the interest rate sensitivity of their outstanding indebtedness.
Interest payments, net of amounts received from interest rate exchange
agreements, totaled $661.8 million in 1994, $623.4 million in 1993 and $661
million in 1992.
The estimated fair value of notes and loans payable, using rates currently
available for debt with similar terms and maturities, is $9,108 million at
December 31, 1994 and $8,141.3 million at December 31, 1993.
72 Transamerica Corporation and Subsidiaries
[E] FINANCIAL INSTRUMENTS (CONTINUED)
CONCENTRATION OF RISK, SECURITIZATION AND FAIR VALUE OF RECEIVABLES
During the normal conduct of its consumer and commercial lending operations,
Transamerica engages in the extension of credit to homeowners, electronics and
appliance dealers, retail recreational products dealers, 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 $3.3 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 45% is located in California. The commercial finance
receivables portfolio represents lending arrangements with over 167,000
customers. At December 31, 1994, the portfolio included 19 customers with
individual balances in excess of $15 million. These accounts represented 12.2%
of total commercial net finance receivables outstanding at December 31, 1994.
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. Cash collected on receivables is 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, 1994 and 1993 are as follows:
_____________________________________________________________________________
(Amounts in millions) Carrying Estimated
Value Fair Value
DECEMBER 31, 1994
Fixed rate receivables-
Consumer $4,024.8 $4,500.1
Commercial 386.0 395.7
Variable rate receivables-
Commercial 2,560.1 2,560.1
________ ________
$6,970.9 $7,455.9
======== ========
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
======== ========
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.
Transamerica Corporation and Subsidiaries 73
[E] FINANCIAL INSTRUMENTS (CONTINUED)
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, 1994 and 1993 are as
follows:
______________________________________________________________________________
(Amounts in millions) Carrying Estimated
Value Fair Value
DECEMBER 31, 1994
Single and flexible premium deferred annuities $ 7,425.8 $ 6,898.5
Single premium immediate annuities 3,735.7 3,510.8
Guaranteed investment contracts 2,382.2 2,336.7
Other deposit contracts 2,319.3 2,244.0
_________ _________
$15,863.0 $14,990.0
========= =========
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
========= =========
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.
DERIVATIVES
The operations of Transamerica are subject to risk of interest rate
fluctuations to the extent that there is a difference between the cash flows
from Transamerica's interest-earning assets and the cash flows related to its
liabilities that mature or are repriced in specified periods. In the normal
course of its operations, Transamerica hedges some of its interest rate risk
with derivative financial instruments. These derivatives comprise primarily
interest rate swap agreements, interest rate floor agreements, interest rate
cap agreements and options to enter into interest rate swap agreements
(swaptions).
ASSET HEDGES
Interest rate floor agreements purchased by Transamerica provide for the
receipt of payments in the event interest rates fall below specified levels.
Interest rate floors are intended to mitigate Transamerica's risk of
reinvesting the cash flow it receives from calls and redemptions on its
investment portfolio at lower interest rates. Interest rate swap agreements
are intended to help Transamerica to more closely match the cash flow
received from its assets to the payments on its liabilities. Transamerica's
interest rate swap agreements generally provide that one party pays interest
at a floating rate in relation to movements in an underlying index and the
other party pays interest at a fixed rate.
The interest rate floor contracts and certain of the interest rate swap
contracts are designated as hedges of a portion of the investment portfolio
and to the extent those investments are marked to market, the hedge
agreements are also marked to market. The cost of these items is amortized
over the lives of the contracts.
74 Transamerica Corporation and Subsidiaries
[E] FINANCIAL INSTRUMENTS (CONTINUED)
ASSET HEDGES (CONTINUED)
At December 31, 1994 contracts designated as hedges of the investment
portfolio comprise:
_____________________________________________________________________________
(Amounts in millions) Weighted Weighted
Average Average
Notional Fixed Floating
Amount Interest Rate Interest Rate
Interest rate swap agreements-
Transamerica receives:
Floating rate interest income,
pays fixed rate interest
expense $178.8 7.2% 6.7%
====== ==== ====
Fixed rate interest income,
pays floating rate interest
expense $ 96.0 5.0% 6.2%
====== ==== ====
Interest rate floor agreements $560.5 6.5%
====== ====
At December 31, 1994 the unamortized cost of the interest rate floors was $18
million and the fair value of all asset hedges was $6.7 million resulting in a
net unrealized loss of $11.3 million ($7.3 million after tax) included in
shareholders' equity.
LIABILITY HEDGES
The interest rate cap contracts, the swaptions and the remaining interest rate
swap contracts are designated and accounted for as hedges of a portion of
Transamerica's liabilities and outstanding indebtedness. These agreements are
accounted for as hedges, and their cost ($2.9 million at December 31, 1994) is
amortized over the lives of the contracts. Transamerica's interest rate cap
agreements limit the amount of interest paid in the event interest rates rise
above specified levels. Transamerica purchases swaptions to help manage the
risk of interest rate fluctuations by providing an option to enter into an
interest rate swap in the event of unfavorable interest rate movements.
At December 31, 1994 contracts designated as hedges of outstanding
indebtedness comprise:
______________________________________________________________________________
(Amounts in millions) Weighted Weighted
Average Average
Notional Fixed Floating
Amount Interest Rate Interest Rate
Interest rate swap agreements -
Transamerica pays:
Floating rate interest expense,
receives fixed rate interest
income $569.5 6.4% 6.2%
====== ==== ====
Fixed rate interest expense,
receives floating rate interest
income $810.1 7.1% 5.9%
====== ==== ====
Floating rate interest expense
based on one index (6.1%) and
receives floating rate interest
income based on another index
(5.0%) $221.0
======
Interest rate caps and swaptions $200.0 6.0%
====== ====
The net present value of these interest rate swap agreements offsets changes
in the fair value of the hedged liabilities and indebtedness, which are also
carried at amortized cost. The fair value of the liability hedges at December
31, 1994 was a net obligation to counterparties of $9.6 million.
While Transamerica is exposed to credit risk in the event of nonperformance by
the other party, nonperformance is not anticipated due to the credit rating of
the counterparties. At December 31, 1994, the interest rate swap and floor
agreements are with banks rated A or better by one or more of the major credit
rating agencies.
Transamerica Corporation and Subsidiaires 75
[F] INCOME TAXES
The provision for income taxes on income from continuing operations comprises:
_____________________________________________________________________________
(Amounts in millions) 1994 1993 1992
Federal current $215.4 $213.0 $214.1
Federal deferred tax provision (benefit) 12.1 (110.7) (42.5)
State 22.6 27.1 28.7
Foreign 12.3 11.2 4.1
______ ______ ______
$262.4 $140.6 $204.4
====== ====== ======
Deferred income taxes 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, 1994 and 1993
are as follows:
_____________________________________________________________________________
(Amounts in millions) 1994 1993
Deferred tax assets:
Allowance for losses $ 106.9 $ 120.6
Impairment of investments 49.6 36.2
Life insurance policy liabilities 707.6 453.8
Unrealized loss on marking investments to
fair value 142.8
Loss and tax credits carryforward 19.0 41.1
Other 191.5 118.1
________ ________
1,217.4 769.8
Deferred tax liabilities:
Deferred policy acquisition costs 773.3 609.2
Accelerated depreciation 320.7 196.6
Unrealized gain on marking investments to
fair value 66.9
Discount amortization on notes and loans payable 66.2 55.8
Other 63.8 142.7
________ ________
1,224.0 1,071.2
________ ________
Net deferred tax liability $ 6.6 $ 301.4
======== ========
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) 1994 1993 1992
Federal income taxes at statutory rate $241.6 $205.8 $183.1
State income taxes 14.7 17.6 15.9
Prior year items (94.2)
Effect of tax rate change on deferred
tax liability 8.4
Other 6.1 3.0 5.4
______ ______ ______
$262.4 $140.6 $204.4
====== ====== ======
Income tax payments totaled $71.9 million in 1994, $135.5 million in 1993 and
$174.8 million in 1992. Included in the loss from discontinued operations are
income tax provisions (benefits) of $200,000, $(13) million and $(263.8)
million for 1994, 1993 and 1992.
76 Transamerica Corporation and Subsidiaries
[G] BUSINESS SEGMENT INFORMATION
_____________________________________________________________________________
(Amounts in millions) 1994 1993 1992
REVENUES
Consumer lending $ 690.6 $ 654.3 $ 660.1
Commercial lending 384.3 370.7 392.8
Leasing 637.9 407.8 420.5
Life insurance 3,289.6 3,026.3 2,767.6
Real estate services and asset management 367.5 362.8 309.9
Other* (15.4) (8.6)
_________ _________ _________
$ 5,354.5 $ 4,813.3 $ 4,550.9
========= ========= =========
OPERATING PROFIT***
Consumer lending $ 148.1 $ 158.6 $ 172.0
Commercial lending 72.0 (18.1) 31.0
Leasing 101.9 91.5 92.1
Life insurance 403.2 380.6 290.4
Real estate services and asset management 137.5 151.5 129.7
_________ _________ _________
862.7 764.1 715.2
Unallocated expenses (156.5) (160.4) (163.2)
Interest expense for real estate services
and asset management (15.9) (15.6) (13.6)
Income tax expense (262.4) (140.6) (204.4)
_________ _________ _________
Income from continuing operations $ 427.9 $ 447.5 $ 334.0
========= ========= =========
ASSETS
Consumer lending $ 4,475.4 $ 3,946.1 $ 3,875.9
Commercial lending 3,363.9 3,508.5 3,625.6
Leasing 3,184.2 1,697.0 1,339.8
Life insurance 28,967.1 26,109.0 22,739.3
Real estate services and asset management 524.0 557.2 456.6
Other** (120.8) 232.7 1,253.7
_________ _________ _________
$40,393.8 $36,050.5 $33,290.9
========= ========= =========
ADDITIONS, AT COST, TO PROPERTY
AND EQUIPMENT
Leasing $ 1,525.3 $ 411.0 $ 337.1
Other 70.2 64.4 75.1
_________ _________ _________
$ 1,595.5 $ 475.4 $ 412.2
========= ========= =========
DEPRECIATION
Leasing $ 201.7 $ 105.9 $ 102.9
Other 46.7 39.2 33.1
_________ _________ _________
$ 248.4 $ 145.1 $ 136.0
========= ========= =========
*Includes intercompany eliminations.
**Includes intercompany eliminations and in 1993 and 1992 net assets of
discontinued operations.
***Operating profit is total revenue less operating expenses. Interest expense
has been deducted only from consumer lending, commercial lending and
leasing operations. Neither unallocated expenses nor income tax has been
deducted from the operations of any segment in computing operating profit.
Transamerica Corporation and Subsidiaries 77
[H] PENSION PLANS
Transamerica Corporation and its subsidiaries 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) 1994 1993 1992
Service cost-benefits earned during the period $ 15.4 $ 15.6 $ 17.7
Interest cost on projected benefit obligation 46.4 43.6 39.2
Actual return (gain) loss on plan assets 19.3 (145.7) (100.4)
Deferral of current gains (losses) varying
from expected return (71.7) 97.7 55.1
Amortization of prior service costs 5.7 5.0 3.5
______ ______ ______
Total pension cost $ 15.1 $ 16.2 $ 15.1
====== ====== ======
The following table sets forth the amounts recognized in the consolidated
statement of financial position for the pension plans:
_____________________________________________________________________________
(Amounts in millions) 1994 1993
Actuarial present value of benefit obligations:
Vested benefit obligation* $586.1 $601.0
====== ======
Accumulated benefit obligation $593.2 $609.1
====== ======
Projected benefit obligation, including effects
of future salary increases $650.1 $651.9
Plan assets at fair value 746.8 777.2
______ ______
Excess of plan assets over projected benefit obligation $ 96.7 $125.3
====== ======
The excess of plan assets over projected benefit
obligation comprises:
Net pension liability $ (3.6) $ (2.3)
Unrecognized net gain arising since January 1, 1986 119.3 146.0
Unrecognized prior service cost (21.8) (20.6)
Unrecognized net obligation at January 1, 1986
net of amortization (7.1) (8.3)
Adjustment required to recognize minimum liability 9.9 10.5
______ ______
$ 96.7 $125.3
====== ======
*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 8.0% (7.25% in 1993) and an assumed rate of compensation
increase of 5.5%. The expected long-term rate of return on plan assets was
8.75% (8.0% in 1993 and 8.5% in 1992).
78 Transamerica Corporation and Subsidiaries
[I] 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, 1994, approximately $3.8 billion is so restricted,
and $0.9 billion is free for remittance to Transamerica subject to investment
and operating requirements.
[J] DISCONTINUED 0PERATIONS
In April 1994, Transamerica sold its remaining 21% ownership interest in
Sedgwick Group plc. Proceeds from the sale were $326.4 million and resulted in
no gain or loss. Transamerica's investment in Sedgwick and its share of
Sedgwick's operating results and related goodwill amortization have been
separated from those of Transamerica's continuing operations and are
classified as discontinued operations. Amounts included in loss from
discontinued operations related to Sedgwick were a loss of $700,000 in 1994
representing results through the date of sale and income of $3 million
and $8.9 million in 1993 and 1992.
In 1993, Transamerica sold its property and casualty insurance subsidiary,
Transamerica Insurance Group, through public offerings. The net proceeds,
after underwriting discounts and issuance costs, totaled $1 billion in cash,
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
completion of the final public offering.
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
approximately $380 million at December 31, 1994 by providing letters of credit
aggregating $190 million and by placing $193 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 and has provided for these
losses.
[K] 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 $99.9 million in 1994, $88.1 million in 1993 and $89.4 million in
1992.
Contingent liabilities arising from litigation, income taxes and other matters
are not expected to have a material effect on the consolidated financial
position or results of operations of Transamerica and its subsidiaries.
Transamerica Corporation and Subsidiaries 79
SUPPLEMENTARY FINANCIAL INFORMATION
________________________________________________________________________________________________________________
SELECTED QUARTERLY
FINANCIAL DATA
1994 March 31 June 30 September 30 December 31 1994 Total
Revenues $1,235.4 $1,363.0 $1,371.3 $1,384.8 $5,354.5
======== ======== ======== ======== ========
Income from continuing
operations $ 103.7 $ 105.7 $ 104.9 $ 113.6 $ 427.9
Loss from
discontinued operations (0.7) (0.7)
________ ________ ________ ________ ________
Net income $ 103.0 $ 105.7 $ 104.9 $ 113.6 $ 427.2
======== ======== ======== ======== ========
Earnings per share
of common stock:
Income from continuing
operations:
Income before investment
transactions $ 1.27 $ 1.30 $ 1.31 $ 1.37 $ 5.25
Investment transactions 0.02 0.04 0.09 0.06 0.21
________ ________ ________ ________ ________
Income from continuing
operations 1.29 1.34 1.40 1.43 5.46
Loss from discontinued
operations (0.01) (0.01)
________ ________ ________ ________ ________
Net income $ 1.28 $ 1.34 $ 1.40 $ 1.43 $ 5.45
======== ======== ======== ======== ========
High and low sales prices
for common shares $57 5/8-49 1/4 $54 5/8-48 7/8 $53 5/8-49 1/2 $51 1/4-46 3/8 $57 5/8-46 3/8
________________________________________________________________________________________________________________
1993 March 31 June 30 September 30 December 31 1993 Total
Revenues $1,149.0 $1,213.5 $1,209.2 $1,241.6 $4,813.3
Income from
continuing operations $ 93.0 $ 117.3 $ 141.1 $ 96.1 $ 447.5
Income (loss) from
discontinued operations (1.2) 6.6 (2.2) (50.2) (47.0)
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:
Income before investment
transactions $ 1.07 $ 1.16 $ 1.61 $ 1.24 $ 5.08
Investment transactions 0.03 0.24 0.12 (0.07) 0.32
________ ________ ________ ________ ________
Income from continuing
operations 1.10 1.40 1.73 1.17 5.40
Income (loss) from discontinued
operations (0.02) 0.09 (0.03) (0.64) (0.60)
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 $62 3/8-53 5/8 $62 3/8-45 5/8
<FN>
(Dollar amounts in millions except for share data)
Note A. On February 28, 1995 the closing sales price for Transamerica common
shares was $54 5/8 and there were 53,200 common shareholders of record.
Transamerica Corporation and Subsidiaries 81
SELECTED ELEVEN-YEAR FINANCIAL DATA
____________________________________________________________________________________________________________
(Dollar amounts in millions except for share data)
1994 1993 1992 1991 1990
Revenues $ 5,354.5 $ 4,813.3 $ 4,550.9 $ 4,175.2 $ 4,097.7
Income from continuing operations $ 427.9 $ 447.5 $ 334.0 $ 5.6 $ 190.5
Earnings per share of common stock (Note A):
Income (loss) from continuing operations $ 5.46 $ 5.40 $ 4.00 $ (0.08) $ 2.30
FINANCIAL POSITION
Total assets $40,393.8 $36,050.5 $33,290.9 $31,133.6 $29,260.9
Notes and loans payable:
Long-term debt $ 7,489.1 $ 5,681.0 $ 6,510.5 $ 6,975.6 $ 6,602.5
OTHER DATA
Per share of common stock:
Dividends declared (Note E) $ 2.00 $ 2.00 $ 2.00 $ 1.98 $ 1.94
<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 1985-1994 and in 1994, premium and expenses on the
redemption of the Series D preferred stock.
Note E. Quarterly dividends per share were 50 cents in 1994 and 1993.
82 Transamerica Corporation and Subsidiaries
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.
88 Transamerica Corporation and Subsidiaries