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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1996
Commission File Number 1-2964
__________________
TRANSAMERICA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0932740
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Montgomery Street
San Francisco, California 94111
(Address of principal executive offices)
(Zip Code)
(4l5) 983-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Number of shares of Common Stock, $1 par value, outstanding as of close
of business on April 30, 1996: 67,227,674 shares.
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TRANSAMERICA CORPORATION
FORM 10-Q
Part I. Financial Information
Item 1. Financial Statements.
The following unaudited consolidated financial statements of Transamerica
Corporation and Subsidiaries, for the periods ended March 31, 1996 and 1995,
do not include complete financial information and should be read in
conjunction with the Consolidated Financial Statements filed with the
Commission in Transamerica's Annual Report on Form 10-K for the year ended
December 31, 1995. The financial information presented in the financial
statements included in this report reflects all adjustments, consisting only
of normal recurring accruals, which are, in the opinion of management,
necessary for a fair statement of results for the interim periods presented.
Results for the three months are not necessarily indicative of the results for
the entire year for most of the Corporation's businesses.
* * * * *
The consolidated ratios of earnings to fixed charges were computed by
dividing income before fixed charges and income taxes by the fixed charges.
Fixed charges consist of interest and debt expense and one-third of rent
expense, which approximates the interest factor.
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TRANSAMERICA CORPORATION AND SUBSIDIARIES
_____________
CONSOLIDATED BALANCE SHEET
Assets
March 31, December 31,
1996 1995
Investments, principally of life
insurance subsidiaries:
Fixed maturities $25,693.9 $26,076.1
Equity securities 773.6 703.2
Mortgage loans and real estate 656.6 594.5
Loans to life insurance policyholders 415.8 426.4
Short-term investments 193.5 226.5
_________ _________
27,733.4 28,026.7
Finance receivables 8,506.2 8,287.8
Less unearned fees ($287.6 in 1996
and $289.7 in 1995) and allowance for
losses 518.4 529.7
_________ _________
7,987.8 7,758.1
Cash and cash equivalents 108.6 67.6
Trade and other accounts receivable 3,398.5 3,130.1
Property and equipment, less accumulated
depreciation of $1,172.3 in 1996 and
$1,140.6 in 1995:
Land, buildings and equipment 409.1 411.5
Equipment held for lease 2,858.9 2,862.0
Deferred policy acquisition costs 2,161.0 1,974.2
Separate account assets 2,544.9 2,533.4
Goodwill, less accumulated amortization of
$134.1 in 1996 and $130.8 in 1995 399.1 402.4
Other assets 827.9 778.5
_________ _________
$48,429.2 $47,944.5
========= =========
(Amounts in millions)
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TRANSAMERICA CORPORATION AND SUBSIDIARIES
_________________
CONSOLIDATED BALANCE SHEET (Continued)
Liabilities and Stockholders' Equity
March 31, December 31,
1996 1995
Life insurance policy liabilities $28,563.5 $27,893.4
Notes and loans payable, principally of
finance subsidiaries, of which $1,382.7
in 1996 and $996.3 in 1995 matures
within one year 10,640.3 10,337.8
Accounts payable and other liabilities 1,870.2 1,672.4
Income taxes 770.9 1,007.6
Separate account liabilities 2,544.9 2,533.4
Minority interest in preferred securities
of affiliate 200.0 200.0
Stockholders' equity:
Preferred Stock ($100 par value):
Authorized--1,200,000 shares; issuable
in series, cumulative
Outstanding--Dutch Auction Rate Trans-
ferable Securities, 2,250 shares, at
liquidation preference of $100,000
per share, weighted average dividend
rate of 3.96% in 1996 and 4.66% in 1995 225.0 225.0
Outstanding--Series D, 180,091 shares in
1996 and 1995, at liquidation preference
of $500 per share, cumulative dividend
rate of 8.5% 90.0 90.0
Preference Stock (without par value)--
5,000,000 shares authorized; none
outstanding
Common Stock ($1 par value):
Authorized--150,000,000 shares
Outstanding--67,678,057 shares in 1996
and 67,989,508 shares in 1995, after
deducting 12,060,405 shares and
11,748,954 shares in treasury 67.7 68.0
Retained earnings 2,911.7 2,866.0
Net unrealized gain on investments marked
to fair value 575.2 1,079.9
Foreign currency translation adjustments (30.2) (29.0)
_________ _________
3,839.4 4,299.9
_________ _________
$48,429.2 $47,944.5
========= =========
(Amounts in millions except for share data)
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TRANSAMERICA CORPORATION AND SUBSIDIARIES
_______________
CONSOLIDATED STATEMENT OF INCOME
Three months ended
March 31,
1996 1995
REVENUES
Life insurance premiums and related
income $ 456.9 $ 425.5
Investment income 514.1 479.7
Finance charges and other fees 293.6 270.1
Leasing revenues 173.8 169.0
Real estate and tax service revenues 58.0 38.9
Gain on investment transactions 13.0 3.1
Other 23.8 34.2
________ ________
1,533.2 1,420.5
EXPENSES
Life insurance benefits 705.2 659.1
Life insurance underwriting, acquisition
and other expenses 153.4 145.7
Leasing operating and maintenance costs 92.9 89.0
Interest and debt expense 177.3 168.3
Provision for losses on receivables 33.2 25.9
Other, including administrative and general
expenses 197.9 181.8
________ ________
1,359.9 1,269.8
________ ________
173.3 150.7
Income taxes 58.0 54.4
________ ________
Net income $ 115.3 $ 96.3
======== ========
Earnings per share of common stock:
Income before investment transactions $1.51 $1.30
Gain on investment transactions 0.12 0.03
_____ _____
Net income $1.63 $1.33
===== =====
Dividends per share of common stock $0.50 $0.50
===== =====
Ratio of earnings to fixed charges 1.94 1.86
(Dollar amounts in millions except for share data)
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TRANSAMERICA CORPORATION AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Three months ended
March 31,
1996 1995
Balance at beginning of year $2,866.0 $2,557.4
Net income 115.3 96.3
Dividends on common stock (33.7) (34.6)
Dividends on preferred stock (4.4) (4.6)
Treasury stock purchased (31.5)
________ ________
Balance at end of period $2,911.7 $2,614.5
======== ========
CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended
March 31,
1996 1995
OPERATING ACTIVITIES
Net income $ 115.3 $ 96.3
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in life insurance policy
liabilities, excluding policyholder
balances on interest-sensitive policies 334.3 107.6
Amortization of policy acquisition costs 61.0 55.9
Policy acquisition costs deferred (90.7) (102.9)
Depreciation and amortization 78.6 71.4
Other (13.9) 85.6
_________ _________
Net cash provided by operating activities 484.6 313.9
INVESTING ACTIVITIES
Finance receivables originated (4,148.2) (4,840.7)
Finance receivables collected 3,846.7 4,716.5
Purchase of investments (1,942.7) (1,407.2)
Sales and maturities of investments 1,188.6 663.7
Purchase of finance receivables and other
assets from ITT Consumer Financial
Corporation (1,027.3)
Other (57.5) (175.7)
_________ _________
Net cash used by investing activities (1,113.1) (2,070.7)
FINANCING ACTIVITIES
Proceeds from debt financing 1,030.0 2,963.2
Payment of notes and loans (740.1) (1,753.5)
Receipts from interest-sensitive policies
credited to policyholder account balances 1,550.8 1,372.9
Return of policyholder balances on
interest-sensitive policies (1,101.3) (755.2)
Treasury stock purchases (51.0) (19.9)
Other common stock transactions 19.2 9.8
Purchase of preferred stock (0.5)
Dividends (38.1) (39.2)
_________ _________
Net cash provided by financing activities 669.5 1,777.6
_________ _________
Increase in cash and cash equivalents 41.0 20.8
Cash and cash equivalents at beginning
of year 67.6 64.3
_________ _________
Cash and cash equivalents at end of period $ 108.6 $ 85.1
========= =========
(Amounts in millions)
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Consolidated Results
Transamerica's net income for the first quarter of 1996 increased
$19 million (20%) compared to the first quarter of 1995.
Net income for the first quarter of 1996 included net after tax gains
from investment transactions aggregating $8.5 million compared to $2 million
in the first quarter of 1995. Income before investment transactions increased
$12.5 million (13%) due primarily to increases in life insurance, real estate
and leasing operating results. Partially offsetting these increases were
decreased commercial lending operating results and higher unallocated interest
and other expenses.
Gain on investment transactions, pretax, included in consolidated
revenues, comprises (amounts in millions):
Three months ended
March 31,
1996 1995
Net gain on sale of investments $ 9.6 $ 6.2
Adjustment for impairment in value (3.9)
Adjustment to amortization of
deferred policy acquisition
costs for realized investment
transactions 3.4 0.8
_____ _____
$13.0 $ 3.1
===== =====
The amortization of deferred policy acquisition costs is adjusted due to
gains or losses realized on the sale of certain investments. The adjustment
to the amortization of deferred policy acquisition costs is included in
investment transactions as an offset to the related gains or losses.
Investment transactions also reflected downward adjustments primarily for
impairment in the value of certain nonperforming fixed maturity investments,
mortgage loans, real estate investments and real estate acquired through
foreclosure.
On March 27, 1996 the life insurance operation exchanged $429.3 million
of non investment grade bond investments for a like amount of higher rated
notes issued by a special purpose subsidiary of Transamerica Corporation
(parent company). The exchange resulted in a $7.8 million gain on investment
transactions at the life insurance operation. This transaction had no effect
on the consolidated financial statements of Transamerica Corporation.
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REVENUES AND INCOME BY LINE OF BUSINESS
Three months ended March 31,
Revenues Income
1996 1995 1996 1995
(Amounts in millions)
Life insurance $ 967.2 $ 902.2 $ 72.8 $63.8
Gain (loss) on investment
transactions 19.6 (1.5) 12.8 (1.0)
________ ________ ______ _____
Total life insurance 986.8 900.7 85.6 62.8
Consumer lending 198.1 171.8 17.8 17.7
Commercial lending 104.6 110.8 14.5 18.0
Leasing 181.9 175.7 18.8 16.3
Amortization of goodwill (3.3) (3.3)
________ ________ ______ _____
Total finance 484.6 458.3 47.8 48.7
Real estate services 66.6 46.4 9.6 2.7
Gain on investment trans-
actions 6.0 6.4 3.5 3.0
________ ________ ______ _____
Total real estate services* 72.6 52.8 13.1 5.7
Unallocated interest and
other expenses* 13.5 (23.4) (20.9)
Consolidation eliminations (10.8) (4.8) (7.8)
________ ________ ______ _____
Total revenues and net income $1,533.2 $1,420.5 $115.3 $96.3
======== ======== ====== =====
*Certain 1995 amounts have been reclassified between real estate services
and unallocated interest and other expenses to conform to the 1996
presentation.
Life Insurance
Net income from life insurance operations for the first quarter of 1996
increased $22.8 million (36%) over the first quarter of 1995. Net income
included a net after tax gain from investment transactions of $12.8 million in
the first quarter of 1996 compared to a net after tax loss of $1 million in
the first quarter of 1995.
Income before investment transactions increased $9 million (14%) in the
first quarter of 1996 over the first quarter of 1995. The life insurance,
structured settlements, group pension, Canadian and corporate and other lines
all experienced increases in income before investment transactions in the
first quarter of 1996 primarily as a result of increased fee income due to a
larger base of interest-sensitive policies and maintained interest spreads on
a growing asset base. The annuities line benefited from higher interest
spreads but experienced a slight decrease in income before investment
transactions in the first quarter of 1996 compared to the first quarter of
1995 primarily as a result of higher operating expenses due primarily to the
relocation of a portion of the operation to Charlotte, North Carolina. Income
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before investment transactions for the reinsurance line decreased as a result
of lower premium revenues during the first quarter of 1996 compared to the
first quarter of 1995.
Investment transactions for the first quarter of 1996 included an after
tax gain of $10.5 million realized on the sale of investments compared to $1
million in the first quarter of 1995. The $10.5 million after tax gain for
the first quarter of 1996 included an after tax gain of $7.8 million resulting
from a transaction with a special purpose subsidiary of Transamerica
Corporation where certain below investment grade bonds were exchanged for
collateralized higher rated bond obligations issued by the special purpose
subsidiary. In the first quarters of 1996 and 1995 investment transactions
related to investments backing interest-sensitive products resulted in losses.
The adjustment to the amortization of deferred policy acquisition costs
reduced the losses by $2.2 million and $600,000 after tax. Investment
transactions in the first quarter of 1995 also reflected a downward adjustment
of $2.6 million after tax primarily for impairment in the value of certain
below investment grade fixed maturity investments. There were no such
downward adjustments in the first quarter of 1996.
Premiums and related income increased $31.4 million (7%) for the first
quarter of 1996 over the first quarter of 1995 due primarily to an increase in
fees from interest-sensitive policies and certain other income from
reinsurance transactions.
Net investment income increased $33.6 million (7%) for the first quarter
of 1996 over the first quarter of 1995 due primarily to increased investments.
Life insurance benefit costs and expenses increased $53.8 million (7%)
for the first quarter of 1996 compared to the first quarter of 1995
principally due to increases in benefits paid or provided attributable to the
larger base of life insurance and annuities in force.
Cash provided by operations for the first quarter of 1996 increased
$102.6 million (60%) over the first quarter of 1995 principally due to
increased investment income from asset growth and the timing in the settlement
of certain receivables and payables, including reinsurance receivables and
payables. The life insurance operation continues to maintain a sufficiently
liquid portfolio to cover its operating requirements, with remaining funds
being invested in longer term securities.
Consumer Lending
Consumer lending net income for the first quarter of 1996 was $17.8
million compared to $17.6 million for the first quarter of 1995. Consumer
lending income before the amortization of goodwill for the first quarter of
1996 was $17.8 million compared to $17.7 million for the first quarter of
1995.
Consumer lending income before the amortization of goodwill for the first
quarter of 1996 rose $100,000 (1%) from the first quarter of 1995. The rise
was due to increased revenues on higher average receivables outstanding that
offset higher interest and other operating expenses and a larger provision for
loan losses.
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Revenues increased $26.3 million (15%) in the first quarter of 1996 over
the comparable year ago period due to the effects of a $554.5 million (13%)
increase in average net receivables outstanding, which resulted primarily from
the March 31, 1995 acquisition of approximately $1 billion in home equity
loans from ITT Consumer Financial Corporation (ITT).
Interest expense increased $7.8 million (11%) for the first quarter of
1996 compared to the year ago period as the impact of the higher average
outstandings offset reduced borrowing rates. Other operating expenses in the
first quarter of 1996 increased $12.3 million (23%) over the first quarter of
1995 due primarily to increased expenses on disposition of repossessed assets,
amortization of intangibles acquired in the ITT acquisition and increased
advertising costs.
The provision for losses on receivables increased $6.1 million (30%) in
the first quarter of 1996 compared to the first three months of 1995 due to an
increase in net credit losses and an increase in the allowance for losses
relating to the non real estate portfolio (discussed below) offset in part by
the effects of a decrease in outstanding receivables, but declined $6.4
million (19%) from the fourth quarter of 1995 which included higher writeoffs
due to the consolidation and acceleration of California foreclosure activity.
Net credit losses in the first quarter of 1996 rose $15.3 million (81%)
over the same quarter a year ago. Net credit losses in the first quarter of
1996 included $8.1 million relating to the ITT portfolio. Excluding the
effects of the ITT portfolio, net credit losses in the first quarter of 1996
were $500,000 (4%) lower in the real estate portfolio but $7.7 million (100%)
higher in the non real estate portfolio. The non real estate receivable
portfolio has been affected by increasing levels of consumer bankruptcies.
Net credit losses as a percentage of average net outstandings were 2.81% in
the first quarter of 1996 versus 1.75% in the first quarter of 1995. The
increase in the percentage was affected by lower outstanding receivables at
March 31, 1996, in addition to the higher amounts of credit losses. There
were no net credit losses on the ITT portfolio in the first quarter of 1995.
Because future credit losses will depend on factors such as economic
conditions and the state of the real estate market, particularly in
California, the extent and timing of any change in the recent trend remains
uncertain.
Net consumer finance receivables at March 31, 1996 and December 31, 1995
were $4.8 billion and $5.2 billion of which $3.9 billion and $4 billion were
real estate secured loans, principally first and second mortgages secured by
residential properties. Approximately 37% of the real estate secured loans
were located in California. The decrease in net receivables was primarily due
to the continuing runoff of the ITT loan portfolio.
Delinquent finance receivables, which are defined as receivables
contractually past due 60 days or more, were $147 million (2.92% of finance
receivables outstanding) at March 31, 1996 compared to $143.6 million (2.79%
of finance receivables outstanding) at December 31, 1995. Approximately one
half of the increase in the delinquency percentages is due to the effects of
lower outstanding receivables at March 31, 1996, with the remainder caused by
an increase in delinquency in the real estate portfolio of $5.2 million (5%)
and a decrease in delinquency in the non real estate portfolio of $1.8
million (4%).
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Management has established an allowance for losses equal to 3.07% of net
consumer finance receivables outstanding at March 31, 1996 compared to 3.32%
at December 31, 1995; the decrease in the percentage reflects $8.1 million in
chargeoffs that had been anticipated on the ITT portfolio offset in part by an
increase in the allowance percentage on the non ITT portfolio from 2.83% to
2.88% which management considered to be prudent based on continued high
credit losses in the non real estate portfolio. Also contributing to the
decrease in the allowance percentage was an adjustment to the ITT purchase
price allocation in the first quarter of 1996 which had the effect of reducing
the allowance for losses on receivables by $8.1 million.
Accrual of interest and other finance charges is suspended on accounts
that become contractually past due more than 29 days. At March 31, 1996 and
December 31, 1995 such nonearning receivables, which exclude accounts in
foreclosure, amounted to $302.6 million and $308 million. Payments received
on accounts while in nonaccrual status are applied to principal and interest
income according to the terms of the loan.
When foreclosure proceedings begin on an account secured by real estate,
the account is moved from finance receivables to other assets and is written
down to the lower of the account balance or the fair value of the collateral
less estimated selling costs. 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 $200.2
million at March 31, 1996, of which 64% pertained to California, compared to
$207.3 million at December 31, 1995, of which 69% pertained to California.
Because future improvements may be impacted by factors such as economic
conditions and the state of the real estate market, particularly in
California, the extent and timing of any change in the trend of foreclosures
and repossessed assets remains uncertain.
Commercial Lending
Commercial lending net income for the first quarter of 1996 was $11.7
million compared to $15.3 million for the first quarter of 1995. Commercial
lending income before the amortization of goodwill was $14.5 million in the
first quarter of 1996 compared to $18 million in the first quarter of 1995.
Income, before the amortization of goodwill, for the first quarter of 1996
decreased $3.5 million (20%) from the first quarter of 1995. The decrease
was primarily due to the inclusion in the 1995 quarter of a $2.8 million after
tax gain on the sale of the consumer rediscount loan portfolio. Higher
operating expenses and provision for losses on receivables during the first
quarter of 1996 also contributed to the decrease. Margins were enhanced
during the first quarter of 1996 due to the higher spread between the indices
at which the commercial lending operation lent to customers versus the indices
at which funds were borrowed.
Revenues in the first quarter of 1996 decreased $6.2 million (6%) from
1995 primarily due to the gain on sale of the rediscount loan portfolio in
1995 and a lower average portfolio yield attributable to lower interest rates
in 1996 offset in part by higher average receivables outstanding.
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Interest expense decreased $2.6 million (7%) in the first quarter of 1996
due to a lower average interest rate on borrowings. Operating expenses
increased $2.0 million (5%) mainly as a result of a $1.3 million ($800,000
after tax) provision for settlement of a legal matter and expenses incurred in
the equipment finance and lease division which began operations in the second
quarter of 1995. The increases were offset in part by reduced expenses
incurred in the management of the liquidating receivables and assets held for
sale which were disposed of in 1995. The provision for losses on receivables
increased $1.2 million (24%) due to a reserve established on a single account
in the insurance premium finance portfolio. Credit losses, net of recoveries,
on an annualized basis as a percentage of average net receivables outstanding
were 0.09% for the first quarter of 1996 compared to 0.71% for the first
quarter of 1995. The decline was primarily due to the relatively higher level
of credit losses related to the consumer rediscount portfolio which was sold
during the first quarter of 1995.
Net commercial finance receivables outstanding increased $327.1 million
(11%) in 1996 from December 31, 1995. Net receivables increased in each of
the core businesses with the largest increase due to seasonal growth in the
inventory finance group. Management has established an allowance for losses
equal to 2.43% of net commercial finance receivables outstanding as of March
31, 1996 compared to 2.51% at December 31, 1995.
Delinquent receivables are defined as the instalment balance for
inventory finance and asset based lending receivables and the outstanding loan
balance for all other receivables over 60 days past due. Delinquent
receivables were $15.2 million (0.44% of receivables outstanding) at March 31,
1996 compared to $11.1 million (0.35% of receivables outstanding) at December
31, 1995.
Nonearning receivables are defined as balances from borrowers that are
over 90 days delinquent or at such earlier time as full collectibility
becomes doubtful. Accrual of finance charges is suspended on nonearning
receivables until such time as past due accounts are collected. Nonearning
receivables were $23.7 million (0.68% of receivables outstanding) at March 31,
1996 compared to $18 million (0.57% of receivables outstanding) at December
31, 1995. The increase in delinquent and nonearning receivables was
primarily attributable to the single account in the insurance premium finance
portfolio referred to above.
Leasing
Leasing net income for the first quarter of 1996 was $18.3 million
compared to $15.8 million for the first quarter of 1995. Leasing income
before the amortization of goodwill was $18.8 million in the first quarter of
1996 compared to $16.3 million in the first quarter of 1995. Leasing income
before the amortization of goodwill for the first quarter of 1996 increased
$2.5 million (15%) over the first quarter of 1995 mainly due to a favorable
resolution of an outstanding state tax issue amounting to $2.6 million.
Excluding the resolution of the state tax issue, earnings for the first
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quarter of 1996 were flat. Earnings increased due to more on-hire units in
the refrigerated container, tank container and European trailer lines of
business and a larger portfolio of finance leases. These increases were
offset by lower earnings which resulted from lower standard container and
chassis utilization and per diem rates, plus a decline in rail trailer
earnings due to a smaller fleet size.
Revenue for the first quarter of 1996 increased $6.2 million (3%) over
the first quarter of 1995. The increase was primarily due to a larger on-hire
fleet of standard, refrigerated and tank containers, chassis and European
trailers. Revenue also increased due to a larger portfolio of finance leases.
Partially offsetting these revenue increases were lower revenues resulting
from lower per diem rates and utilization for standard container and chassis.
Rail trailer also reported lower revenues due to a smaller fleet size and less
on-hire units.
Expenses for the first quarter of 1996 increased $7.0 million (5%) over
the first quarter of 1995 mainly due to higher ownership and operating costs
of the larger refrigerated container, chassis and European trailer fleets.
The combined utilization of standard containers, refrigerated containers,
domestic containers, tank containers and chassis averaged 81% for the first
quarter of 1996 compared to 84% in the first quarter of 1995. Rail trailer
utilization was 79% for the first quarter of 1996 compared to 78% in the first
quarter of 1995. European trailer utilization was 92% for the first quarter
of 1996 compared to 96% in the first quarter of 1995.
Real Estate Services
Real estate services comprise Transamerica's real estate tax, investment
management and other related services.
Net income for the first quarter of 1996 increased $7.4 million (130%)
over the first quarter of 1995 primarily due to an increase in real estate tax
service revenues caused by higher mortgage refinancings resulting from lower
interest rates. Net income included after tax gains from investment
transactions in the first quarter of 1996 and 1995 of $3.5 million and $3
million.
Revenues for the first quarter of 1996 increased $19.8 million (38%)
over the first quarter of 1995 as a result of increased business at the real
estate tax service operation.
Unallocated Interest and Other Expenses
Unallocated interest and expenses, after related income taxes, for the
first three months of 1996 increased $2.5 million. The increase was primarily
due to income from Criterion Investment Management Company (Criterion) which
was included in the first quarter of 1995 results. Criterion was sold on
May 2, 1995.
Page 14
Corporate Liquidity and Capital Requirements
Transamerica Corporation receives funds from its subsidiaries in the form
of dividends, income taxes and interest on loans. The Corporation uses these
funds to pay dividends to its stockholders or purchase treasury shares,
reinvest in the operations of its subsidiaries and pay corporate interest,
expenses and taxes. Reinvested funds are allocated among subsidiaries on the
basis of expected returns, creation of shareholder value and capital needs.
Reinvestment may be accomplished by allowing a subsidiary to retain all or a
portion of its earnings, or by making capital contributions or loans.
The Corporation also borrows funds to finance acquisitions or to lend to
certain of its subsidiaries to finance their working capital needs.
Subsidiaries are required to maintain prudent financial ratios consistent
with other companies in their respective industries and retain the capacity
through committed credit lines to repay working capital loans from the
Corporation.
On March 21, 1996, Transamerica announced that its board of directors had
authorized additional purchases of up to 2 million shares of the company's
common stock of which 48,200 had been purchased by March 31, 1996. As a
result of this, and other previously announced share purchase programs,
during the first quarter of 1996 Transamerica purchased 603,200 shares for $46
million.
Investment Portfolio
Transamerica, principally through its life insurance subsidiaries,
maintains an investment portfolio aggregating $27.7 billion at March 31,
1995, of which $25.7 billion was invested in fixed maturities. At March 31,
1996, 96.3% of the fixed maturities was rated as "investment grade" with an
additional 2.7% in the BB category or its equivalent. The amortized cost of
fixed maturities was $24.8 billion resulting in a net unrealized gain
position, before the effects of income taxes, of $902.9 million at March 31,
1996. Fixed maturity investments are generally held for long-term investment
and used primarily to support life insurance policy liabilities. The
amortized cost of delinquent below investment grade securities, before
provision for impairment in value, was $2.1 million at March 31, 1996 compared
to $6.9 million at December 31, 1995. Adjustment for impairment in value has
been made to reduce the amortized cost of certain fixed maturity investments
by $67.6 million at March 31, 1996 and $71.4 million at December 31, 1995.
In addition to the investments in fixed maturities, $656.6 million (2.4%
of the investment portfolio), net of allowance for losses of $48.6 million,
was invested in mortgage loans and real estate including $607.7 million in
commercial mortgage loans, $81.4 million in real estate investments,
$15.8 million in foreclosed real estate, and $300,000 in residential mortgage
loans. Problem loans, defined as restructured loans yielding less than 8%
and delinquent loans, totaled $10.4 million at March 31, 1996. Problem loans
increased $6.5 million from December 31, 1995 to March 31, 1996 due to the
bankruptcy of one borrower. Allowances for possible losses of $48.6 million
at March 31, 1996 and $48.8 million at December 31, 1995 have been established
to cover possible losses from mortgage loans and real estate investments.
Page 15
The net unrealized gain/loss from investments marked to fair value, after
related taxes and deferred acquisition cost adjustments, which is included in
stockholders' equity deteriorated $504.6 million during the first quarter of
1996 and improved $346.1 million in the comparable 1995 period. These changes
were primarily due to the effects of changing interest rates on the fair value
of the fixed maturity portfolio.
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).
Derivative financial instruments with a notional amount of $4,689.8
million at March 31, 1996 and $1,000.7 million at December 31, 1995 and
designated as hedges of Transamerica's investment portfolio were outstanding.
In addition, derivative financial instruments with a notional amount of
$2,449.2 million at March 31, 1996 and $3,738.2 million at December 31, 1995
and designated as hedges of Transamerica's liabilities were outstanding. The
change in the notional amount outstanding of both asset and liability hedges
reflects additional derivative contracts entered into and redesignation of
certain of Transamerica's outstanding derivative contracts from liability
hedges to asset hedges to better reflect for accounting purposes the match of
the derivative and the underlying hedged risk.
While Transamerica is exposed to credit risk in the event of
nonperformance by the other party, nonperformance is not anticipated due to
the credit rating of the counterparties. At March 31, 1996, the derivative
financial instruments discussed above were issued by financial institutions
rated A or better by one or more of the major credit rating agencies. The
fair value of Transamerica's derivative financial instruments at March 31,
1996 and December 31, 1995 was a net benefit of $71.1 million and $79.9
million comprising agreements with aggregate gross benefits of $108.5 million
and $122,5 million and agreements with aggregate gross obligations of $37.4
million and $42.6 million.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
At the Corporation's Annual Meeting of Stockholders held on April 25,
1996, its stockholders voted on a number of proposals and nominations.
Results of these proposals and nominations were:
Page 16
Votes Votes Votes Broker--
For Against Withheld Abstentions Non--Votes
Nomination for director:
Samuel L. Ginn 60,346,997 805,405
Frank C. Herringer 59,988,430 1,163,972
Charles R. Schwab 60,048,589 1,103,813
Election of auditors 60,672,644 252,773 226,985
Stockholder Proposal
on Redemption, or
Submission to a
Stockholder Vote, of
the Stock Purchase
Rights Plan Adopted
in 1986* 17,611,912 37,027,828 1,416,258 5,096,404
*Stockholder did not present the proposal for action at the meeting.
A total of 61,152,402 shares were present in person or by proxy at the
Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 Statement Re: Computation of Per Share Earnings.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
(b) Reports on Form 8-K. None.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSAMERICA CORPORATION
(Registrant)
Burton E. Broome
Vice President and Controller
(Chief Accounting Officer)
Date: May 10, 1996