EXHIBIT 13
FINANCIAL REVIEW
CONSOLIDATED RESULTS
In 1996 all of Transamerica's principal businesses performed well with the
exception of the consumer lending unit. Both our life insurance and leasing
operations had record results for the year, but the consumer lending business
reported an operating loss. The loss resulted from a significant increase in
loan loss reserves as a result of our decision to reduce our exposure to non
real estate loans and to incur the costs necessary to build a new business
model for originating and servicing loans.
Transamerica's net income for 1996 declined by $14.2 million (3%) from
1995. Results in 1996 included $25.5 million of net after tax gains from
investment transactions compared to $34.4 million of such gains in 1995.
Operating income, which excludes investment transactions, in 1996 included
$63.8 million in benefits from the resolution of prior years' tax matters and
$9.1 million from the elimination of certain contingencies. These
contingencies were associated with the sale of our commercial lending
operation's Puerto Rican assets in 1995, and with businesses we had previously
discontinued. Offsetting these benefits was a $72 million after tax charge at
the consumer lending operation primarily for increased loan loss reserves.
Operating income, which excludes investment transactions, also included
several special items in 1995, among them a $30 million tax benefit from the
resolution of prior years' tax matters, a $12.2 million after tax benefit from
the reversal of a valuation allowance no longer needed due to the favorable
terms on disposition of assets held for sale, and a $2.9 million after tax
benefit from the settlement of a class action lawsuit in which Transamerica
was the plaintiff, involving an investment in fixed maturity securities issued
by Franklin Savings Association. The favorable effect of these special items
was offset in part by several other items: a $21.5 million after tax provision
for an expected loss on the sale and leaseback of Transamerica Center in
downtown Los Angeles, a $12 million after tax charge related to the
consolidation, accelerated foreclosure and disposition of certain repossessed
real estate properties in California, and after tax charges totaling $9.7
million primarily for restructuring the real estate services operations.
Excluding special items, operating income in 1996 decreased $4.3 million
(1%) from 1995 primarily as a result of lower consumer lending earnings and
higher unallocated interest and other expenses. These negative factors were
partially offset by improved operating results at the life insurance, real
estate services, leasing and commercial lending businesses.
Transamerica's net income for 1995 increased $43.3 million (10%) compared
to 1994. Net income included net after tax gains from investment transactions
totaling $34.4 million in 1995 and $15 million in 1994. Excluding the special
items described above from the 1995 results, operating income increased $22
million (5%) from 1994 due primarily to increased operating income at the life
insurance, leasing, commercial lending and consumer lending businesses. The
higher results at consumer lending were principally due to
[24] Transamerica Corporation and Subsidiaries
the acquisition of a portfolio of loans from ITT in March, 1995. Partially
offsetting these improvements were lower operating income from real estate
services and higher unallocated expenses.
The $25.5 million of gains on investment transactions in 1996 included
$53.2 million after tax on the sale of investments. These gains were reduced
by $21.8 million after tax from the accelerated amortization of the deferred
policy acquisition costs associated with products sold by the life insurance
operations, and by loss provisions of $5.9 million after tax for impairments
in the value of certain investments.
The $34.4 million of gains on investment transactions in 1995 included
$55.7 million after tax on the sale of investments, which were reduced by $6
million after tax for the accelerated amortization of deferred policy
acquisition costs, and loss provisions of $15.3 million after tax for
impairment in the value of certain investments. Investment transactions in
1995 included an after tax gain of $15.3 million from the Franklin Savings
Association lawsuit settlement.
OPERATING INCOME BY BUSINESS SEGMENT
The following table summarizes Transamerica's operating results by business
segment. Additional business segment information is provided in footnote E of
the notes to financial statements.
(Amounts in millions except
for per share data) 1996 1995 1994
- ----------------------------------------------------------------------------
LIFE INSURANCE $325.4 $290.8 $250.2
FINANCE
Consumer lending (45.1) 80.5 90.4
Commercial lending 73.2 75.2 53.7
Leasing 80.8 75.1 63.6
Amortization of goodwill (12.7) (13.0) (13.0)
______ ______ ______
Total finance 96.2 217.8 194.7
REAL ESTATE SERVICES
Real estate services 44.4 18.7 51.8
Amortization of goodwill (0.1) (0.1) (0.1)
______ ______ ______
Total real estate services 44.3 18.6 51.7
Unallocated interest and other expenses (35.1) (91.1) (84.4)
______ ______ ______
Operating income 430.8 436.1 412.2
Gain on investment transactions 25.5 34.4 15.0
______ ______ ______
Net income $456.3 $470.5 $427.2
====== ====== ======
EARNINGS PER SHARE OF COMMON STOCK
Operating income $ 6.21 $ 6.08 $ 5.24
Gain on investment transactions 0.38 0.50 0.21
______ ______ ______
Net income $ 6.59 $ 6.58 $ 5.45
====== ====== ======
Average shares outstanding 66.6 68.8 72.6
====== ====== ======
[25] Transamerica Corporation and Subsidiaries
LIFE INSURANCE
The Transamerica life insurance companies design, underwrite, distribute and
reinsure traditional and investment based life insurance and other financial
security products. At the end of 1996 we had $422 billion of life insurance in
force. Our customers include individuals and families who buy life insurance,
annuities, mutual funds and long-term care insurance; individuals and
businesses who purchase pension, annuity, mutual fund and other investment
products; other life insurance companies that buy reinsurance from us; and the
U.S. government, for which we process Medicare claims.
We have different strategies for adding shareholder value in each of the
different segments of our life insurance operations. In individual life
insurance, we are building our marketing capabilities to understand better the
needs of both existing and potential customers and to design more targeted
products to meet those needs. We are striving to improve the value of our
existing distribution systems while seeking alternative distribution channels
which serve selected new markets. In annuities, we continue to focus on
product innovation and exceptional product support. In asset management, we
are continuing our shift to less capital-intensive products, including fee-
based products and services. We are also working to expand our markets beyond
those traditionally served by life insurance companies. In reinsurance, our
strategy is to expand our role as a risk manager by continuing to offer life
and annuity product consulting and development services and to expand our role
as a reinsurance market maker in North America and internationally. In
structured settlements, we have consolidated our activities and are focusing
on selected opportunities. Beginning in 1997, we combined these activities
with those of asset management.
Net income from our life insurance operations increased $29.5 million
(10%) in 1996 and $46.2 million (17%) in 1995. Net income included net after
tax gains from investment transactions totaling $14.2 million in 1996, $19.3
million in 1995, and $13.7 million in 1994. Income before investment
transactions increased $34.6 million (12%) in 1996 and $40.6 million (16%) in
1995. Income before investment transactions in 1995 included a $4.4 million
tax benefit from the favorable settlement of a prior year's tax matter and a
$2.9 million after tax benefit from the settlement of a lawsuit involving an
investment in fixed
[26] Transamerica Corporation and Subsidiaries
maturity investments issued by Franklin Savings Association. These favorable
items were offset in part by a $900,000 after tax restructuring charge.
Operating income grew in 1996 at the individual life insurance and asset
management lines primarily because of growth in the asset base of interest-
sensitive policies, and because interest spreads were maintained on this
growing asset base.
The reinsurance line increased its operating income in 1996 primarily by
assuming a higher volume of new in force business.
Structured settlements operating income was down 3% in 1996 due
to reduced interest spreads, despite decreasing operating expenses.
The Canadian line improved its operating income in 1996 through growth in the
base of interest-sensitive policies.
In annuities, we benefited from increased interest spreads and fee income
but experienced a decrease in income before investment transactions compared
to 1995 primarily because of costs associated with moving portions of the
operation to Charlotte, North Carolina and Kansas City, Missouri.
In 1995, the individual life insurance, structured settlements,
annuities, asset management and Canadian lines all experienced increases in
operating income primarily because interest spreads remained relatively stable
while asset bases grew. The individual life insurance line had higher policy-
related income because of its larger base of interest-sensitive policies. At
the reinsurance line, revenues grew at a faster rate than total benefits and
expenses.
Investment transactions for 1996 included after tax gains of $41.9
million on the sale of investments compared to $40.6 million in 1995 and $27.6
million in 1994. Investment transactions in 1996 included an after tax gain of
$9.1 million on a transaction with a special purpose subsidiary of
Transamerica Corporation. In this transaction, certain below investment-
grade bonds were exchanged for collateralized bond obligations with higher
ratings issued by the subsidiary. The transaction had no effect on
Transamerica's consolidated financial statements.
Adjustments to the amortization of deferred policy acquisition costs
reduced after tax investment gains by $21.8 million in 1996, $6 million in
1995 and $4.1 million in 1994. Investment transactions in 1996 also reflected
losses resulting from writedowns in carrying value of $5.9 million after tax,
compared to $15.3 million in 1995 and $9.8 million in 1994, primarily for
impairment in the value of certain below investment grade fixed maturity
investments.
Transamerica Corporation and Subsidiaries [27]
LIFE INSURANCE [continued]
Net investment income increased $105.6 million (5%) in 1996 and $200.8
million (11%) in 1995 primarily because of the growth in invested assets.
Premiums and other income decreased $14.7 million (1%) in 1996 primarily
as a result of lower single premium group annuity sales. Premiums and other
income increased $367.6 million (25%) in 1995 primarily because of higher
annuity sales, an increase in the level of reinsurance assumed, and an
increase in the charges on interest-sensitive policies.
Life insurance benefit costs and expenses grew $36.5 million (1%) in 1996
and $521.7 million (18%) in 1995. Because of the larger base of life insurance
and annuities in force, policy benefits and policy acquisition costs
(exclusive of accelerated amortization related to investment gains) were all
higher. Commissions and other expenses included charges of $1.3 million in
1996, $8.7 million in 1995 and $15.2 million in 1994 for anticipated guaranty
fund assessments, and in 1994, additional losses on the 1991 sale of a
business unit.
Cash provided by operations for 1996 was $818.3 million, $274.5 million
(50%) higher than in 1995 primarily because of growth in the underlying assets
and liabilities of the business. We continue to maintain a sufficiently liquid
investment portfolio in this operation to cover operating requirements. The
rest of our funds are invested in longer-term securities.
The life insurance business is a defendant in various legal actions
arising from its operations. These include legal actions, similar to those
faced by many other major life insurers, which allege damages related to sales
practices for non-guaranteed premium policies sold since the early 1980s. The
Company is working toward a settlement of the principal action involving such
matters. Such settlement would be subject to significant contingencies,
including approval by the court. That action may proceed if such contingencies
are not satisfied.
[28] Transamerica Corporation and Subsidiaries
LIFE INSURANCE
(Amounts in millions) 1996 1995 1994
- -----------------------------------------------------------------------------
ASSETS
Investments $28,935.4 $27,703.2 $22,329.1
Deferred policy acquisition costs 2,138.2 1,974.2 2,480.5
Other assets 5,408.4 5,422.4 4,157.5
_________ _________ _________
$36,482.0 $35,099.8 $28,967.1
========= ========= =========
LIABILITIES AND EQUITY
Policy reserves and related items $28,542.8 $27,893.4 $24,731.7
Other liabilities 4,566.7 3,746.5 2,330.7
Equity* 3,372.5 3,459.9 1,904.7
_________ _________ _________
$36,482.0 $35,099.8 $28,967.1
========= ========= =========
REVENUES
Investment income, net of expenses $ 2,079.7 $ 1,974.1 $ 1,773.3
Premiums and other income 1,848.1 1,862.8 1,495.2
Gain on investment transactions 21.9 29.6 21.1
_________ _________ _________
3,949.7 3,866.5 3,289.6
EXPENSES
Policyholder benefits 2,805.8 2,858.7 2,356.4
Commissions and other expenses 638.8 549.4 530.0
Income taxes 165.5 148.3 139.3
_________ _________ _________
3,610.1 3,556.4 3,025.7
_________ _________ _________
Net income $ 339.6 $ 310.1 $ 263.9
========= ========= =========
SOURCE OF CASH
Cash provided by operations $ 818.3 $ 543.8 $ 498.0
Net receipts from interest-sensitive
policies 1,087.3 1,527.4 2,014.8
_________ _________ _________
$ 1,905.6 $ 2,071.2 $ 2,512.8
========= ========= =========
APPLICATION OF CASH
Net purchases of investments $ 1,862.4 $ 1,986.1 $ 2,442.3
Equity transactions 40.0 40.0 30.0
Other 3.2 45.1 40.5
_________ _________ _________
$ 1,905.6 $ 2,071.2 $ 2,512.8
========= ========= =========
*Equity includes net unrealized gains (losses), from marking investments to
fair value, of $549.8 million in 1996, $946 million in 1995 and $(321.2)
million in 1994. See footnote C of the notes to the financial statements for
consolidated components of unrealized gains (losses).
Transamerica Corporation and Subsidiaries [29]
TRANSAMERICA FINANCE CORPORATION
Transamerica Finance Corporation, a separate SEC registrant, includes
Transamerica's consumer lending, commercial lending (excluding insurance
premium finance which is not part of the registrant) and leasing operations
and provides funding for these businesses. Its principal assets are finance
receivables and equipment held for lease, which totaled a combined $10.7
billion at December 31, 1996 and $10.9 billion at December 31, 1995. These
operations have a high level of liquidity since the majority of their assets
are finance receivables. Principal cash collections of finance receivables
totaled $17.4 billion in 1996, $17.5 billion in 1995, and $14.8 billion in
1994. Transamerica Finance Corporation's total notes and loans payable were
$9.9 billion at December 31, 1996 and $9.7 billion at December 31, 1995. Its
variable-rate debt totaled $5.5 billion at December 31, 1996 compared to $4.8
billion at December 31, 1995. Transamerica Finance Corporation's ratio of
debt to tangible equity was 6.9:1 at December 31, 1996 and 7:1 at December 31,
1995.
Transamerica Finance Corporation publicly offers, from time to time,
senior or subordinated debt securities. It issued a total of $688 million of
public debt in 1996, $832 million in 1995 and $1,516 million in 1994. Under a
shelf registration statement filed in April 1995 with the Securities and
Exchange Commission, Transamerica Finance Corporation may offer up to $3
billion of senior or subordinated debt securities with varying terms, of which
$1.9 billion had not been issued at December 31, 1996.
[30] Transamerica Corporation and Subsidiaries
TRANSAMERICA FINANCE CORPORATION
(Amounts in millions) 1996 1995 1994
- -----------------------------------------------------------------------------
ASSETS
Finance receivables less unearned fees
and allowance for losses $ 7,617.7 $ 8,019.7 $ 7,092.5
Equipment held for lease 3,118.5 2,862.0 2,606.6
Goodwill 328.2 339.9 351.6
Assets held for sale 86.5 99.1 157.7
Other assets 1,354.6 785.5 746.4
_________ _________ _________
$12,505.5 $12,106.2 $10,954.8
========= ========= =========
LIABILITIES AND EQUITY
Notes and loans payable $ 9,874.1 $ 9,689.9 $ 8,724.3
Other liabilities 949.8 701.8 648.2
Equity 1,681.6 1,714.5 1,582.3
_________ _________ _________
$12,505.5 $12,106.2 $10,954.8
========= ========= =========
REVENUES
Finance and leasing revenues $ 1,929.7 $ 1,915.1 $ 1,677.8
EXPENSES
Operating expenses 895.5 839.9 779.3
Interest 607.8 625.3 485.6
Provision for losses on receivables and
assets held for sale 280.7 91.8 99.1
Income taxes 51.2 145.5 125.6
_________ _________ _________
1,835.2 1,702.5 1,489.6
_________ _________ _________
Net income $ 94.5 $ 212.6 $ 188.2
========= ========= =========
SOURCE OF CASH
Cash provided by operations $ 815.7 $ 743.4 $ 639.4
Finance receivables collected 17,442.9 17,494.8 14,846.7
Proceeds from debt financing 6,779.3 8,281.5 7,189.4
Other 421.2 106.8 111.4
_________ _________ _________
$25,459.1 $26,626.5 $22,786.9
========= ========= =========
APPLICATION OF CASH
Additions to equipment held for lease $ 397.7 $ 573.3 $ 440.1
Finance receivables originated 17,890.5 17,590.9 15,705.5
Payments of notes and loans 6,933.0 7,333.6 5,528.1
Purchase of finance receivables and
other assets from ITT Consumer
Financial Corporation 1,027.3
Purchase of Tiphook container assets 1,061.4
Equity transactions 237.9 101.4 51.8
_________ _________ _________
$25,459.1 $26,626.5 $22,786.9
========= ========= =========
Transamerica Corporation and Subsidiaries [31]
CONSUMER LENDING
Transamerica's consumer lending operation makes loans primarily secured
by real estate to consumers in the United States, Canada and the United
Kingdom. At the end of 1996, we had $4.2 billion in net consumer loan
receivables outstanding, 83% of which were fixed-rate first and second
mortgages. Receivables outstanding declined by 18% in 1996 from 1995. The five
largest states, in terms of receivables, are California, Arizona, Illinois,
Ohio and Washington.
In 1996, we reported a loss from consumer lending operations of $45.1
million compared to income of $80.5 million in 1995. The loss was primarily
due to a higher provision for losses on receivables and higher operating
expenses.
During 1996 we began to refocus this business on real estate secured
lending, using a new business model to centralize back office support, reduce
operating costs and implement database marketing. We also announced a plan to
accelerate efforts to reduce our exposure to non real estate consumer loans by
further curtailing production of these loans, liquidating parts of the non
real estate loan portfolio, and intensifying collection efforts. When we later
expanded this plan to include certain real estate secured loans, the plan
covered a total of $1.1 billion in receivables. During the third quarter, we
established a centralized collection unit and arranged to have outside parties
assist in our accelerated collection effort. In the fourth quarter we sold
$422.4 million of the receivables covered by the plan in a series of sales and
transferred $106.3 million of receivables back into the base business
portfolio, leaving approximately $462.3 million remaining at December 31, 1996
after collections and charge offs. In the fourth quarter, we consolidated 39
branches into other locations.
In 1995 the consumer lending operation purchased for $1,027.3 million in
cash substantially all the assets and assumed certain liabilities of the home
equity business of ITT Consumer Financial Corporation (ITT). During that year,
consumer lending operating income decreased $9.9 million (11%) from 1994,
primarily due to higher operating and interest expenses and an increased
provision for losses on receivables. Together these factors more than offset
increased revenues, including those from the ITT receivables. Our 1995 results
included a fourth-quarter charge of $12 million after tax to consolidate and
accelerate foreclosures in California, and to dispose of certain repossessed
California real estate.
Revenues decreased $22.7 million (3%) in 1996 following an increase of
$91.9 million (13%) in 1995 because we had fewer receivables outstanding. In
1996 we curtailed our non real estate business and sold many of those loans.
As expected, there was also runoff of the ITT receivables. Revenues increased
in 1995 due to higher interest income from the ITT acquisition.
The provision for losses on receivables increased $175.1 million (179%)
in 1996 and $15.6 million (19%) in 1995 primarily due to increased
delinquencies and credit losses, and the accelerated disposi-
[32] Transamerica Corporation and Subsidiaries
tion plan discussed above. Net credit losses as a percentage of average net
receivables outstanding before foreclosures were 3.38% in 1996 compared to
2.15% for 1995 and 1.93% for 1994. Net credit losses increased $54.5 million
(53%) from 1995. Losses on loans included in the plan represented $20.4
million of the increase. Losses in the core portfolio of principally real
estate secured loans increased $34.1 million, of which $11.4 million was due
to higher losses in the ITT portfolio. Excluding the ITT loans, 1996's higher
losses were primarily due to increased foreclosures in California. The 1995
increase was due to continued sluggishness in the California economy and a
continued weak real estate market there.
Interest expense decreased $24.1 million (8%) in 1996 primarily because
of the lower levels of finance receivables outstanding and a decrease in
short-term interest rates. Interest expense increased $67.1 million (27%) in
1995 primarily due to higher levels of finance receivables outstanding and an
increase in short-term interest rates. Other operating expenses increased
$36.8 million (16%) from 1995 because of the higher expenses we incurred in
disposing of repossessed assets, higher advertising costs, higher contract
service fees related to customer service and collections, the cost of
consolidating and centralizing processing functions, and a $6.4 million
writedown of the company's computer system. In 1995, other operating expenses
increased $23.3 million (11%) primarily due to amortization of customer
renewal rights associated with the ITT acquisition and an increase in losses
on disposition of repossessed property in California.
Average net receivables decreased $113 million (2%) in 1996 primarily due
to the runoff of the ITT portfolio, the sale of many non real estate loans,
and the runoff of other loan portfolios which exceeded new loan originations.
In 1995, receivables increased $794.3 million (19%) primarily due to the ITT
acquisition. Excluding the ITT loans, receivables declined by $16 million
(less than 1%) in 1995. Net consumer finance receivables at December 31, 1996
and December 31, 1995, excluding amounts segregated for liquidation or in
foreclosure, were $3.5 billion and $4.9 billion. These receivables were
principally first and second mortgages secured by residential properties,
approximately 34% of which were located in California.
Delinquent finance receivables, which are defined as finance receivables
contractually past due 60 days or more and for which the foreclosure process
has not begun, are shown below as of December 31:
(Dollar amounts in millions) 1996 1995
- -----------------------------------------------------------------------------
DELINQUENT RECEIVABLES
Finance receivables primarily secured by
residential real estate $116.6 3.17% $143.6 2.79%
Other receivables - special assets 103.3 21.34%
______ ______ ______ _____
Total $219.9 5.28% $143.6 2.79%
====== ====== ====== =====
Transamerica Corporation and Subsidiaries [33]
CONSUMER LENDING [continued]
Approximately 40% of the increase in the delinquency percentage of gross
receivables outstanding was due to having lower receivables outstanding at
December 31, 1996. The rest was caused by an increase in delinquencies of
$76.3 million. Active management of delinquent accounts has become temporarily
more difficult as we move to a new business model.
We have established an allowance for losses equal to 6.75% of net
consumer finance receivables (excluding foreclosures in process) at December
31, 1996 compared to 3.32% at December 31, 1995. Foreclosures in process have
already been written down to estimated net realizable value. The higher
allowance is in response to increased delinquencies and is part of our plan to
reduce our exposure to the non real estate loan segment as discussed above.
The December 31, 1996 allowance comprises 4.53% of real estate secured and
other finance receivables, and 23.80% of receivables segregated for
liquidation.
We suspend the accrual of interest and other finance charges on accounts
that become contractually past due by more than 29 days. At December 31, 1996
and 1995 nonearning net receivables, which excludes accounts in process of
foreclosure, totaled $467 million and $308 million. When we receive payments
on accounts in nonaccrual status, we apply them to principal and interest
income according to the terms of the loan.
When foreclosure proceedings begin on an account secured by real estate,
the amount is written down to the lower of the account balance or the fair
value of the collateral less estimated selling costs. Accounts in process of
foreclosure totaled $144.3 million at December 31, 1996, 47% of which was in
California, and $112.7 million at December 31, 1995, 55% of which was in
California. Repossessed assets held for sale totaled $83.1 million, 71% of
which was in California, at December 31, 1996 and $94.6 million, 85% of which
was in California, at December 31, 1995.
Factors such as economic conditions, competition, and, for accounts
secured by real estate, the state of the real estate market (particularly in
California) all affect trends in receivables levels, credit losses,
delinquencies, accounts in foreclosure, repossessed assets and our results of
operations.
CONSUMER LENDING
(Amounts in millions) 1996 1995 1994
- ----------------------------------------------------------------------------
REVENUES
Finance charges and related income $759.8 $782.5 $690.6
EXPENSES
Interest 293.8 317.9 250.8
Operating expenses 269.5 232.7 209.4
Provision for losses on receivables 272.9 97.8 82.2
Incomes taxes (benefit) (31.3) 53.6 57.8
______ ______ ______
804.9 702.0 600.2
______ ______ ______
Income (loss) from operations (45.1) 80.5 90.4
Amortization of goodwill (0.1) (0.1) (0.1)
______ ______ ______
Net income (loss) $(45.2) $ 80.4 $ 90.3
====== ====== ======
[34] Transamerica Corporation and Subsidiaries
COMMERCIAL LENDING
Transamerica's commercial lending operation makes loans to small, medium
and large businesses. At the end of 1996 we had net finance receivables of
$3.7 billion in three core businesses: distribution finance, business credit
and insurance premium finance. In distribution finance, we finance the
products of manufacturers, distributors and retailers of consumer durable
products and home and recreational products through their distribution
channels. In business credit, we make loans to many types of businesses for a
variety of needs, including working capital, refinancing, restructuring and
leveraged acquisitions. We also provide lease financing to medium sized
companies for capital equipment purchases. In insurance premium finance, we
provide financing for commercial property and casualty insurance premiums. The
financing is secured by a contractual interest in the unearned premium.
Our major strategies to increase distribution finance receivables are to
grow in our current markets, enter new industries, expand internationally, and
establish additional business lines.
In business credit, our strategies for growth are to increase our
penetration of the markets we serve and to pursue new market segments.
In insurance premium finance, our strategies include reducing costs
through consolidation and centralization, and continuing to expand globally.
Income from our commercial lending operations decreased $2 million (3%)
in 1996 and increased $21.5 million (40%) in 1995. Operating results for 1996
included a $4.5 million benefit primarily from the favorable resolution of
disputed issues surrounding the 1995 sale of assets in Puerto Rico. Operating
results for 1995 included a $12.2 million after tax benefit from reversing a
valuation allowance no longer required following the Puerto Rican asset sale
and a $4.8 million after tax gain on the sale of a portfolio of consumer
rediscount loans. Results for 1994 included a $5.5 million after tax charge
for relocation expenses, and a $4 million after tax gain from the sale of
repossessed rent-to-own stores.
Excluding the items discussed above, commercial lending income from
operations increased $10.5 million (18%) in 1996 and $3 million (6%) in 1995.
Growth in each of the core businesses during 1996 led to higher average
receivables outstanding and increased operating income. In 1995 operating
income rose because of improved margins, reduced operating expenses and a
lower provision for losses. Margins were enhanced in both years due to the
higher spread between the indices at which the commercial lending operation
loans to customers and the indices at which it borrows funds.
Revenues in 1996 increased $9.1 million (2%) from 1995 principally as
a result of growth in average net receivables outstanding. Revenues rose
$39.4 million (10%) in 1995 due to a higher average portfolio yield caused by
higher interest rates.
Interest expense fell $300,000 (-%) in 1996 from 1995 because of the
lower
Transamerica Corporation and Subsidiaries [35]
COMMERCIAL LENDING [continued]
average interest rate paid on borrowings, which was partially offset by a
higher average debt level due to receivables growth. Interest expense
increased $29.7 million (25%) in 1995 compared to 1994 due to a higher average
interest rate.
Operating expenses increased $3.6 million (2%) in 1996 primarily because
of growth in the size of the company. In 1995, operating expenses declined
$7.8 million (5%) from 1994 primarily because 1994 included a $9 million ($5.5
million after tax) charge for the relocation of the commercial lending home
office. This charge was partially offset by a $5.3 million ($4 million after
tax) gain on the sale of repossessed rent-to-own stores. Excluding these
items, operating expenses decreased $4.1 million (3%) in 1995 mainly because
expenses were lower for managing the liquidating receivables portfolio and the
assets held for sale portfolio, which we disposed of in 1995.
In 1996 the provision for losses on receivables decreased $5.9 million
(37%) from 1995 due to lower credit losses and because reserves were higher in
the liquidating loan portfolio than were ultimately necessary. In 1995, the
provision for losses declined $2.2 million (12%) from 1994 due to higher
charges in 1994 on the consumer rediscount loan portfolio which was sold in
1995, and lower 1995 losses in the liquidating portfolio. These factors were
partially offset by an increased loss provision in the insurance premium
finance business. Credit losses, net of recoveries, as a percentage of average
commercial finance receivables outstanding net of unearned finance charges,
were 0.16% in 1996, 0.34% in 1995 and 0.29% in 1994.
Net commercial finance and lease receivables outstanding at December 31,
1996 increased $592.5 million (19%) from December 31, 1995. Receivables grew
in each of the three core businesses. The distribution finance unit gained
$285 million of receivables by increasing the penetration of its existing
markets through joint venture alliances and other activities. Business credit
receivables increased $212 million due to growth in the equipment finance and
leasing operation. The insurance premium finance unit grew its receivables by
$99 million primarily through expansion in Europe. We have established an
allowance for losses equal to 2.22% of net commercial finance receivables
outstanding as of December 31, 1996 compared to 2.51% as of December 31,
1995.
Delinquent receivables are defined as instalments for inventory finance
and asset-based lending receivables more than 60 days past due and the
receivables balance for all other receivables more than 60 days past due. At
December 31, 1996, delinquent receivables were $17.3 million (0.46% of
receivables outstanding) compared to $11.1 million (0.35% of receivables
outstanding) at December 31, 1995.
Nonearning receivables are defined as balances from borrowers that are
more than 90 days delinquent or sooner if it appears doubtful they will be
fully collectible. Accrual of finance charges is suspended on nonearning
receivables until
[36] Transamerica Corporation and Subsidiaries
past due amounts are collected. Nonearning receivables were $21.4 million
(0.56% of receivables outstanding) at December 31, 1996, compared to $18
million (0.57% of receivables outstanding) at December 31, 1995.
During 1995, the insurance premium finance operation securitized a $475
million participation interest in a pool of its receivables. This new three-
year agreement replaced a 1990 securitization of $375 million which expired in
1995. Proceeds from this transaction were used primarily to reduce debt. At
December 31, 1996, all $475 million of the securitized receivables were still
outstanding. The commercial lending operation continues to service this loan
portfolio and remains partially at risk for losses through limited recourse
provisions in the agreement.
COMMERCIAL LENDING
(Amounts in millions) 1996 1995 1994
- ----------------------------------------------------------------------------
REVENUES
Finance charges and related income $432.8 $423.7 $384.3
EXPENSES
Interest 148.4 148.7 119.0
Operating expenses 159.9 156.3 164.1
Provision for losses on receivables 10.2 16.1 18.3
Provision (benefit) for losses on assets
held for sale (20.1)
Income taxes 41.1 47.5 29.2
______ ______ ______
359.6 348.5 330.6
______ ______ ______
Income from operations 73.2 75.2 53.7
Amortization of goodwill (10.6) (10.9) (10.9)
______ ______ ______
Net income $ 62.6 $ 64.3 $ 42.8
====== ====== ======
Transamerica Corporation and Subsidiaries [37]
LEASING
Transamerica Leasing's fleet of intermodal transportation equipment is one of
the largest in the world. In addition to service and term operating leases, we
provide structured financing that enables customers to purchase equipment over
time. We lease this equipment to and manage it for steamship lines, railroads,
shippers, distribution companies and motor carriers.
Most of our intermodal containers are used in international trade, while
our chassis, rail trailers and domestic containers are used primarily within
North America. We also have an over the road trailer leasing business in
Europe. In 1996, utilization rates for our international containers declined
to 81% from 85% in 1995 as the rate of growth in world trade slowed and the
size of the worldwide container fleet grew. Utilization of our rail trailers
increased in 1996 to 82% from 77% in 1995 as the U.S. economy remained strong
and the supply of equipment declined.
Our major strategies are to improve returns on our standard container
product line, provide new services, such as broking interchanges among our
customers, reduce our operating costs and expand our specialized equipment
product lines.
In October 1996, we acquired Trans Ocean Ltd., a container leasing
company, in exchange for approximately 1.6 million shares of Transamerica
common stock. The Trans Ocean fleet approximated 185,600 owned and managed
units, consisting of a variety of equipment types. It has increased the size
of Transamerica Leasing's fleet by about 25%. The transaction has been
accounted for as a purchase with revenues and expenses included in our leasing
operations' results from the date of acquisition.
Income from leasing operations in 1996 rose $5.7 million (8%) from 1995.
The increase resulted from a larger portfolio of finance leases and lower
ownership costs for the rail trailer business. Income also increased due to
the resolution of outstanding tax issues totaling $4.4 million and benefits
from entering into structured lease transactions. Partially offsetting these
increases were reduced earnings in standard and refrigerated containers and
chassis due to lower utilization rates, and lower standard containers and
chassis rental rates.
In 1995, income from operations increased $11.5 million (18%) over 1994
mainly due to higher utilization rates and increased fleet size in the
standard, refrigerated and tank container lines, and to a larger European
trailer fleet. Increased used equipment sales resulted in additional after tax
gains in 1995 of $7.2 million. 1995 earnings also benefited from a $2.2
million after tax depreciation adjustment taken following final settlement of
the purchase price for the container operations purchased from Tiphook plc in
March 1994, and from a $1.8 million benefit from the resolution of an
outstanding state tax issue. Partially offsetting these increases were lower
earnings in the rail trailer business where utilization fell due to lower U.S.
intermodal rail loadings.
Revenues increased in 1996 by $31.7 million (4%) primarily because we had
a
[38] Transamerica Corporation and Subsidiaries
larger on-hire fleet of refrigerated containers, tank containers and European
trailers and a larger portfolio of finance leases. Partially offsetting these
revenue increases were reduced standard container revenues due to lower
utilization and rental rates and lower gain on used equipment sales. Rail
trailers also had lower revenues because of a smaller fleet and lower gains on
used equipment sales.
Revenues for 1995 increased $96 million (15%) from 1994 because we had
more on-hire standard, tank and refrigerated containers, chassis and European
trailers, and because the Tiphook acquisition increased the size of our
standard and tank container fleets. Partially offsetting these increases were
lower revenues from the rail trailer business because we had fewer units on
hire.
Expenses excluding income taxes increased $31.2 million (5%) in 1996 as
a result of larger refrigerated container, chassis and European trailer
fleets, partially offset by lower operating expenses from a smaller rail
trailer fleet. Expenses excluding income taxes grew $78.3 million (15%) in
1995 mainly due to the higher depreciation and interest expenses, and
operating costs associated with these larger fleets.
The combined utilization of standard containers, refrigerated containers,
domestic containers, tank containers and chassis averaged 81% for 1996, 85%
in 1995 and 81% in 1994. Rail trailer utilization was 82% in 1996, 77% in
1995 and 92% in 1994. European trailer utilization was 92% in 1996, 95% in
1995 and 96% in 1994. Utilization of our fleet is dependent on worldwide
economic conditions, market pressures and industry fleet size.
Our fleet of standard containers, refrigerated containers, domestic
containers, tank containers and chassis totaled 896,300 units at the end of
1996. It increased by 187,900 units (27%) in 1996 and 23,000 units (3%) in
1995. The 1996 increase was largely due to the acquisition of Trans Ocean.
LEASING
(Amounts in millions) 1996 1995 1994
- ----------------------------------------------------------------------------
REVENUES
Total leasing revenues $765.6 $733.9 $637.9
EXPENSES
Operating expenses 129.2 126.5 126.3
Depreciation on equipment held for lease 255.1 236.6 197.3
Selling and administrative expenses 95.5 95.1 94.6
Interest 163.6 154.0 115.7
Income taxes 41.4 46.6 40.4
______ ______ ______
684.8 658.8 574.3
______ ______ ______
Income from operations 80.8 75.1 63.6
Amortization of goodwill (2.0) (2.0) (2.0)
______ ______ ______
Net income $ 78.8 $ 73.1 $ 61.6
====== ====== ======
Transamerica Corporation and Subsidiaries [39]
REAL ESTATE SERVICES
This segment includes Transamerica's real estate information businesses as
well as certain real estate and other investments. The primary business in
this segment is Transamerica Real Estate Tax Service which obtains property
tax information and monitors or processes property tax payments on mortgaged
properties nationwide. Tax service customers include a wide range of lenders
from banks and savings and loans to mortgage companies.
The tax service's primary strategies are to improve its customer service
and profitability through centralizing services, process redesign,
strengthening its relationship with key customers, and striving to be the low-
cost provider of real estate tax services.
Net income from real estate services increased by $31 million (92%) in
1996 and decreased by $23 million (41%) in 1995. Net income included net after
tax gains from investment transactions of $20.4 million in 1996, $15.1 million
in 1995 and $5 million in 1994. Operating income, which excludes gains from
investment transactions, increased $25.7 million (137%) in 1996. Operating
income for 1995 included an $8.8 million after tax restructuring charge
principally for the relocation and consolidation of the tax service business.
Excluding the 1995 restructuring charge real estate services' operating income
for 1996 increased $16.9 million (61%). Tax service revenues increased due to
higher mortgage refinancings and home sales. We also had after tax gains
totaling $5.3 million on the sales of seven real estate properties. In 1995,
operating income decreased $33.1 million (64%). Excluding the restructuring
charge, real estate services' operating income for 1995 decreased $24.3
million (47%) primarily because lower mortgage refinancings caused a
significant decline in tax service revenues.
Revenues in 1996 increased $103.4 million (41%) from 1995 because of
increased business at the tax service and higher investment income. Revenues
decreased $11.2 million (4%) in 1995 when business at the tax service
declined.
The funds these businesses require for capital expenditures and working
capital are generated by operations. Cash, cash equivalents and accounts
receivable, which totaled $276.5 million at December 31, 1996 and $102.5
million at December 31, 1995, are the real estate services operations'
principal sources of liquidity.
[40] Transamerica Corporation and Subsidiaries
REAL ESTATE SERVICES
(Amounts in millions) 1996 1995 1994
- ----------------------------------------------------------------------------
ASSETS
Cash, cash equivalents and
accounts receivable $ 276.5 $102.5 $ 66.3
Investments 1,036.2 512.2 347.6
Land and buildings 163.9 165.9 146.9
Other assets 54.9 71.0 76.8
________ ______ ______
$1,531.5 $851.6 $637.6
======== ====== ======
LIABILITIES AND EQUITY
Loss and future service reserves $ 169.4 $156.6 $137.9
Notes and loans payable 810.6 363.2 300.5
Other liabilities 101.7 53.7 50.5
Equity 449.8 278.1 148.7
________ ______ ______
$1,531.5 $851.6 $637.6
======== ====== ======
REVENUES
Real estate services revenues $ 325.6 $230.2 $257.0
Gain on investment transactions 31.3 23.3 7.7
________ ______ ______
356.9 253.5 264.7
________ ______ ______
EXPENSES
Salaries and other operating expenses 260.2 203.4 174.4
Income taxes 31.9 16.3 33.5
________ ______ ______
292.1 219.7 207.9
________ ______ ______
Income from operations 64.8 33.8 56.8
Amortization of goodwill (0.1) (0.1) (0.1)
________ ______ ______
Net income $ 64.7 $ 33.7 $ 56.7
======== ====== ======
SOURCE OF CASH
Cash provided by operations $ 35.0 $ 13.4 $122.7
Proceeds from debt financing 55.9 31.3 11.5
Equity transactions 15.3 14.9
________ ______ ______
$ 106.2 $ 59.6 $134.2
======== ====== ======
APPLICATION OF CASH
Equity transactions $ 62.3
Net purchases of investments $ 35.4 $ 29.6 63.8
Payments of notes and loans 30.1 10.0 0.9
Other 40.7 20.0 7.2
________ ______ ______
$ 106.2 $ 59.6 $134.2
======== ====== ======
Transamerica Corporation and Subsidiaries [41]
UNALLOCATED INTEREST AND OTHER EXPENSES
Unallocated interest and other expenses, after related income taxes, for the
last three years were:
(Amounts in millions) 1996 1995 1994
- -----------------------------------------------
Interest expense $46.5 $42.7 $45.2
Other expenses (income) (11.4) 48.4 39.2
_____ _____ _____
$35.1 $91.1 $84.4
===== ===== =====
Unallocated interest and other expenses decreased $56 million (61%) in
1996 primarily due to a $63.8 million benefit from the satisfactory resolution
of prior year tax issues and a $4.6 million benefit from the resolution of
issues regarding previously discontinued operations. The 1995 results also
included several special items: a $25.6 million benefit from the satisfactory
resolution of prior year tax matters, a $21.5 million after tax provision for
the expected loss on the sale and leaseback of Transamerica Center in downtown
Los Angeles, and $6.6 million of after tax income from the May 1995 sale of
the investment management subsidiary. Excluding these items, unallocated
interest and expenses rose $1.7 million (2%) in 1996 from 1995 primarily due
to increased interest expense associated with higher outstanding debt levels.
Excluding the special items discussed above from the 1995 results, unallocated
interest and expenses increased $17.4 million (21%) from 1994, primarily due
to increased expenses associated with the Monthly Income Preferred Securities
which were issued in late 1994 and higher costs associated with the continuing
centralization of certain administrative functions which have resulted in
overall cost savings.
[42] Transamerica Corporation and Subsidiaries
CORPORATE LIQUIDITY
Transamerica Corporation receives funds from its subsidiaries in the form of
dividends, income taxes and interest on loans. We use these funds to pay
dividends to our stockholders, purchase shares of our common stock, reinvest
in the operations of our subsidiaries and pay corporate interest, expenses and
taxes. We reinvest funds in our subsidiaries based on expected returns,
expected level of shareholder value added, and the need for capital to
maintain debt-to-equity ratios. We may reinvest by allowing a subsidiary to
retain all or a portion of its earnings, or by making capital contributions or
loans.
Transamerica also borrows funds to finance acquisitions or lend to
subsidiaries to finance their working capital needs. Our subsidiaries are
required to maintain prudent financial ratios consistent with other companies
in their industries and to maintain the capacity to repay working capital
loans from Transamerica. At December 31, 1996, Transamerica and its
subsidiaries had short-term borrowings, principally commercial paper, totaling
$4.3 billion, supported by credit agreements with 59 banks. It is our policy
to maintain credit line coverage equal to at least 100% of short-term
borrowings. At December 31, 1996, we had credit available under these lines
equal to $5.2 billion or 121% of these borrowings; credit support equal to 95%
of the borrowings was with banks rated AAA/AA or the equivalent by one or more
of the major credit rating agencies.
In 1991, Transamerica filed a registration statement with the Securities
and Exchange Commission under which up to $500 million of debt securities with
varying terms may be sold. These securities may be senior or subordinated and,
if subordinated, may be convertible into common stock. In November 1996,
Transamerica sold $200 million of senior notes bearing interest at 6.75% due
in November 2006. Of the remaining $300 million of debt securities available
to be sold under the registration statement, $200 million has been designated
as Medium Term Notes, Series B, of which none have been sold.
Transamerica's commercial paper, senior debt and preferred stock are
rated by independent rating agencies and we continue to maintain debt to
capital ratios consistent with our current ratings.
Transamerica Finance Corporation, a wholly owned subsidiary of
Transamerica, also issues debt publicly to fund the consumer lending,
commercial lending and leasing operations. In November 1996 Transamerica
Finance Corporation issued $200 million of senior notes bearing interest at
6.375% due in November 2001.
In December 1996, a subsidiary of Transamerica closed a $307 million
leveraged lease transaction involving the sale and leaseback of 69,000
containers.
In November 1996, Transamerica Capital I and II, affiliates of
Transamerica, issued $325 million of Capital Trust Pass-through Securities.
These included $100 million of 30-year securities maturing December 1, 2026
redeemable commencing in 2006 with a coupon of 7.80% issued by Transamerica
Capital I, and $225
Transamerica Corporation and Subsidiaries [43]
CORPORATE LIQUIDITY [continued]
million of 30-year, non-callable securities maturing December 1, 2026 with a
coupon of 7.65% issued by Transamerica Capital II. Proceeds from the issuance
of these securities were invested by the affiliates in subordinated debentures
issued by Transamerica, bearing interest at 7.65% and 7.80% and maturing on
December 1, 2026. Proceeds to Transamerica were used for general corporate
purposes. The outstanding Capital Trust Pass-through Securities are shown as
minority interest in Transamerica's consolidated balance sheet.
In October 1996 we acquired Trans Ocean Ltd., a closely held container
leasing company, in exchange for the issuance of approximately 1.6 million
shares ($112.7 million) of Transamerica common stock of which 337,000 shares
($24.2 million) remain in escrow pending the resolution of certain items.
In May 1995, Transamerica sold the assets of its investment management
subsidiary, Criterion Investment Management Company. Proceeds from the sale
were $60 million and were used to reduce debt.
In March 1995, Transamerica acquired a portfolio of approximately 40,000
home equity loans from ITT for $1,027.3 million in cash. We funded the
purchase primarily with long-term 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 to reduce debt.
In October 1994, Transamerica Delaware, LP, an affiliate of Transamerica,
issued $200 million of 9.125% cumulative Monthly Income Preferred Securities.
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. The Monthly Income Preferred Securities obligation is
shown as minority interest in Transamerica's consolidated balance sheet.
In April 1994, Transamerica sold its remaining 21% ownership interest in
Sedgwick Group plc. We used the $326.4 million in proceeds from this sale to
purchase 4.5 million shares of our common stock and reduce debt.
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.
[44] Transamerica Corporation and Subsidiaries
STOCKHOLDERS' EQUITY
Transamerica's capital structure includes debt, preferred stock and common
stock. We continuously strive to minimize our cost of capital while
maintaining investment-grade credit ratings. Ratings are very important to our
life insurance customers. Our ratings also enable us to borrow at attractive
rates, which improves the spreads at our finance businesses.
In December 1996, we announced the redemption of all of the outstanding
Dutch Auction Rate Transferable Securities' Preferred Stock. The redemption
was completed in February 1997. In January 1997, we announced the redemption
of the outstanding Series D Preferred Stock. This redemption was also
completed in February 1997.
During 1996, we continued to return excess equity capital to stockholders
by purchasing the company's common stock. During the year, a total of
4,287,900 common shares were purchased at a cost of $319.8 million (an average
price of $74.57 per share). Since we began our share purchase program in May
1993, a total of 17.4 million shares have been acquired through December 31,
1996 at an aggregate purchase price of $1,051 million. In July 1996,
Transamerica announced that its board of directors had authorized additional
purchases of up to 2 million shares of the company's common stock. At December
31, 1996 there were 267,100 shares remaining to be purchased under this
authorization.
In June 1994, Transamerica completed a "Dutch Auction" tender offer to
purchase 4.5 million shares of our common stock at a price of $54.75 per
share. We used a portion of the net proceeds from the sale of Transamerica's
interest in Sedgwick Group plc to purchase these shares.
As a result of the July 1996 program, the Dutch Auction tender discussed
above, and the purchase of 11.2 million shares under five previously
announced share purchase programs beginning in 1993, the number of common
shares outstanding at December 31, 1996 was 66 million compared to 68 million
at December 31, 1995, 69.4 million at December 31, 1994 and 79.7 million at
April 30, 1993 before the share purchase program began.
In November 1994, Transamerica completed a tender offer to redeem for
cash 4.4 million depositary shares representing 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 stockholders' equity. This reduced earnings to common
stockholders and resulted in a 9 cent reduction in 1994 earnings per share.
Transamerica Corporation and Subsidiaries [45]
INVESTMENT PORTFOLIO
Transamerica's total invested assets were $29.4 billion at December 31, 1996,
most of which were held by our life insurance companies. Transamerica
Investment Services, a wholly owned subsidiary of Transamerica, manages all of
Transamerica's securities portfolios. At the end of 1996, total invested
assets represented 81% of our insurance assets and 59% of Transamerica's total
assets. In 1996 our investment income rose to $2.1 billion and represented 34%
of Transamerica's total revenues.
The majority of our invested assets is in fixed maturity securities. We
generally make long-term investments primarily in investment-grade corporate
bonds and government securities to support our life insurance policy
liabilities. We use fundamental research and active management to seek to
achieve a balanced bond portfolio that meets our goals for income, security of
principal and diversification. At the end of 1996, 95.8% of our fixed maturity
investments were rated as "investment grade," with an additional 3.0% rated in
the BB category or its equivalent. "Investment grade" is generally defined
as any issue rated above Ba by Moody's Investors Service or above BB by
Standard & Poor's Corporation.
The average yield of the fixed maturity portfolio was 7.8 percent in 1996
compared to 8.1 percent in 1995 and 8.5 percent in 1994. The average yield
declined in 1996 due to a continuing shift to floating rate investments with
shorter maturities to match the changing life insurance product mix.
At December 31, 1996, our fixed income portfolio had a total market value
of $27 billion and an amortized cost of $25.9 billion, resulting in a net
unrealized gain. This gain, before the effects of income taxes and adjustments
to deferred acquisition costs and policy liabilities, totaled $1.1 billion.
The amortized cost of delinquent securities, before a provision for impairment
in value, was $100,000 at December 31, 1996 compared to $6.9 million at
December 31, 1995. The
[46] Transamerica Corporation and Subsidiaries
adjustment for the impairment in value reduced the amortized cost of certain
fixed maturity investments by $62.9 million at December 31, 1996 and $71.4
million at December 31, 1995.
We also have a portfolio of equity securities with an aggregate market
value of $1 billion at December 31, 1996, $599.2 million in excess of their
cost. Our equity investment philosophy is to do our own research on a very
select group of high quality companies. Our research is focused on
anticipating and understanding long-term change.
In addition to our fixed maturity and equity investments, at December 31,
1996 we had $745.5 million invested in mortgage loans and real estate. This
amount represented 2.5% of our total investments and 1.5% of our total assets.
These additional investments included $684.1 million in commercial mortgage
loans, $78 million in real estate investments, $6.2 million in foreclosed real
estate and $20 million in residential mortgage loans. Problem loans totaled
$8.1 million at December 31, 1996 and $3.9 million at December 31, 1995. We
have established allowances to cover possible losses from mortgage loans and
real estate investments. These allowances totaled $42.8 million at December
31, 1996 and $48.8 million at December 31, 1995. Transamerica also owns land,
buildings and equipment used in operations, including the Transamerica
Pyramid, our corporate headquarters in San Francisco.
New investments acquired in 1996 totaled $7.2 billion. Of that amount,
95% was in taxable, fixed maturity securities and 5% was invested principally
in common and preferred stocks, mortgage loans and loans to policyholders. The
average yield on new fixed maturity securities was 7.06 percent. During 1996,
we committed to or funded $580 million of new private placement debt
securities.
Transamerica Corporation and Subsidiaries [47]
CONSOLIDATED BALANCE SHEET
December 31 1996 1995
- -----------------------------------------------------------------------------
ASSETS
Investments, principally of life insurance
subsidiaries:
Fixed maturities $26,985.9 $26,076.1
Equity securities 1,046.0 703.2
Mortgage loans and real estate 745.5 594.5
Loans to life insurance policyholders 442.6 426.4
Short-term investments 165.2 226.5
_________ _________
29,385.2 28,026.7
Finance receivables, of which $4,168.7 in 1996 and
$3,913.3 in 1995 matures within one year 8,697.9 8,849.6
Less unearned fees ($437.6 in 1996 and $397.9 in
1995) and allowance for losses 794.1 642.6
_________ _________
7,903.8 8,207.0
Cash and cash equivalents 471.8 67.6
Trade and other accounts receivable 2,383.0 3,130.1
Property and equipment, less accumulated
depreciation of $1,309.9 in 1996 and
$1,140.6 in 1995:
Land, buildings and equipment 436.8 411.5
Equipment held for lease 3,118.5 2,862.0
Deferred policy acquisition costs 2,138.2 1,974.2
Separate accounts administered by life insurance
subsidiaries 3,527.9 2,533.4
Goodwill, less accumulated amortization of $143.9
in 1996 and $130.8 in 1995 389.3 402.4
Other assets 120.4 329.6
_________ _________
$49,874.9 $47,944.5
========= =========
(Amounts in millions except for share data)
See notes to financial statements
[48] Transamerica Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET (continued)
December 31 1996 1995
- ----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Life insurance policy liabilities $28,542.8 $27,893.4
Notes and loans payable, principally of finance
subsidiaries, of which $1,241.3 in 1996 and
$996.3 in 1995 matures within one year 10,328.3 10,337.8
Accounts payable and other liabilities 1,899.0 1,672.4
Income taxes, of which $850.9 in 1996 and $891.5
in 1995 is deferred 911.3 1,007.6
Separate account liabilities 3,527.9 2,533.4
Minority interest in preferred securities of
affiliates 525.0 200.0
Stockholders' 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, 180,091 shares at
liquidation preference of $500 per share 90.0 90.0
Common stock ($1 par value):
Authorized--150,000,000 shares
Outstanding--65,968,708 in 1996 and 67,989,508
shares in 1995, after deducting 13,769,754 and
11,748,954 shares in treasury in 1996 and 1995 66.0 68.0
Additional paid-in capital 83.0
Retained earnings 2,920.2 2,866.0
Net unrealized gain from investments marked to
fair value 784.4 1,079.9
Foreign currency translation adjustments (28.0) (29.0)
_________ _________
4,140.6 4,299.9
_________ _________
$49,874.9 $47,944.5
========= =========
Transamerica Corporation and Subsidiaries [49]
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31 1996 1995 1994
- -----------------------------------------------------------------------------
REVENUES
Investment income $2,102.2 $1,990.3 $1,782.6
Life insurance premiums and related income 1,848.1 1,862.8 1,495.2
Finance charges and other fees 1,197.8 1,199.0 1,068.1
Leasing revenues 689.1 669.5 594.2
Real estate and tax service revenues 255.7 195.0 240.6
Gain on investment transactions 39.2 52.9 23.1
Other 95.5 131.6 150.7
________ ________ ________
6,227.6 6,101.1 5,354.5
EXPENSES
Life insurance benefits 2,805.8 2,858.7 2,356.4
Life insurance underwriting, acquisition
and other expenses 638.8 549.4 530.0
Leasing operating and maintenance costs 384.3 363.1 323.6
Interest and debt expense 690.3 699.5 570.5
Provision for losses on receivables and
assets held for sale 283.0 93.8 100.6
Other, including administrative and
general expenses 840.3 831.6 783.8
________ ________ ________
5,642.5 5,396.1 4,664.9
________ ________ ________
585.1 705.0 689.6
Income taxes 128.8 234.5 262.4
________ ________ ________
Net income $ 456.3 $ 470.5 $ 427.2
======== ======== ========
Net income per share of common stock $ 6.59 $ 6.58 $ 5.45
======== ======== ========
(Amounts in millions except for share data)
See notes to financial statements
[50] Transamerica Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31 1996 1995 1994
- ----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 456.3 $ 470.5 $ 427.2
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 947.3 1,272.8 813.8
Amortization of policy acquisition costs 268.8 191.3 182.3
Policy acquisition costs deferred (388.0) (381.8) (394.9)
Depreciation and amortization 325.9 306.5 263.2
Other 28.1 (626.3) 82.3
_________ _________ _________
Net cash provided by operating
activities 1,638.4 1,233.0 1,373.9
INVESTING ACTIVITIES
Finance receivables originated (19,832.4) (19,327.5) (17,387.8)
Finance receivables collected 19,282.5 19,301.4 16,678.7
Purchase of investments (8,014.7) (6,256.3) (9,656.4)
Sales and maturities of investments 6,185.3 4,204.9 7,151.4
Purchase of the container division
assets of Tiphook plc (1,061.4)
Purchase of finance receivables and
other assets from ITT Consumer
Financial Corporation (1,027.3)
Other 519.9 (538.2) (103.0)
_________ _________ _________
Net cash used by investing activities (1,859.4) (3,643.0) (4,378.5)
FINANCING ACTIVITIES
Proceeds from debt financing 6,852.4 8,476.9 7,197.6
Payments of notes and loans (7,204.6) (7,330.4) (5,766.2)
Receipts from interest-sensitive
policies credited to policyholder
account balances 6,260.7 5,151.4 4,434.7
Return of policyholder balances on
interest-sensitive policies (5,173.4) (3,624.0) (2,419.9)
Proceeds from sale of preferred
securities of affiliates 323.9 192.6
Redemption of preferred stock (0.8) (115.9)
Treasury stock purchases (330.2) (155.4) (387.0)
Proceeds from issuance of common stock 45.6 51.0 8.0
Dividends (149.2) (155.4) (167.7)
_________ _________ _________
Net cash provided by financing
activities 625.2 2,413.3 2,976.2
_________ _________ _________
Increase (decrease) in cash and
cash equivalents 404.2 3.3 (28.4)
Cash and cash equivalents at
beginning of year 67.6 64.3 92.7
_________ _________ _________
Cash and cash equivalents at end of year $ 471.8 $ 67.6 $ 64.3
========= ========= =========
(Amounts in millions)
See notes to financial statements
Transamerica Corporation and Subsidiaries [51]
CONSOLIDATED STATEMENT OF STOCKHOLDERS' 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 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)
Net income 470.5
Dividends declared:
On common stock (137.4)
On preferred stock (18.0)
Common stock issued 1.1 49.9
Treasury stock purchased (2.5) (146.4) (6.5)
Redemption of preferred stock (0.8)
Other changes 1,345.0 9.2
______ ______ _______ ________ ________ ______
BALANCE AT DECEMBER 31, 1995 315.0 68.0 2,866.0 1,079.9 (29.0)
Net income 456.3
Dividends declared:
On common stock (132.2)
On preferred stock (17.0)
Common stock issued 2.4 155.9
Treasury stock purchased (4.4) (72.9) (252.9)
Other changes (295.5) 1.0
______ ______ ______ ________ ________ ______
BALANCE AT DECEMBER 31, 1996 $315.0 $ 66.0 $ 83.0 $2,920.2 $ 784.4 $(28.0)
====== ====== ====== ======== ======== ======
<FN>
(Amounts in millions)
See notes to financial statements
[52] Transamerica Corporation and Subsidiaries
NOTES TO FINANCIAL STATEMENTS December 31, 1996
[A] SIGNIFICANT ACCOUNTING POLICIES
Business
Transamerica Corporation is a financial services organization which engages
through its subsidiaries in life insurance, consumer lending, commercial
lending, leasing and real estate services. The United States is the primary
market for the services offered by most of Transamerica's subsidiaries except
for the leasing business, which operates in the container leasing business
worldwide.
Consolidation
The consolidated financial statements include the accounts of Transamerica
Corporation and its subsidiaries. Certain amounts reported in the consolidated
financial statements are based on management estimates. Such amounts may
ultimately differ from those estimates.
Investments
Investments in fixed maturities, comprising bonds, notes and redeemable
preferred stocks, and investments in equity securities, comprising marketable
corporate common and nonredeemable preferred stocks, are carried at fair
value. Fair value for actively traded securities is based on quoted market
prices. For fixed maturity securities that are not actively traded, fair value
is estimated using information obtained from independent pricing services.
Changes to the carrying amount of fixed maturity and equity securities
are included in stockholders' equity. Realized gains and losses on investment
transactions are determined generally on a specific identification basis and
reflected in earnings 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. Other
intangible assets, principally renewal, referral and other rights incident to
businesses acquired, are amortized over estimated future benefit periods
ranging from five to 25 years in proportion to acquired gross profits.
Goodwill is amortized over periods up to 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, except that accrual of finance charges is suspended on accounts that
become past due contractually in excess of 29 days for consumer loans or 90
days for commercial loans.
Leasing revenues are recognized in the period earned.
Transamerica Corporation and Subsidiaries [53]
[A] SIGNIFICANT ACCOUNTING POLICIES [continued]
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.
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.
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. Although realization of
the benefits associated with deferred policy acquisition costs is not assured,
management believes it is more likely than not that such amounts will be
realized. Adequate provision is made for reported and unreported claims and
related expenses.
Derivatives
Transamerica uses derivative financial instruments to hedge some of its
interest rate and foreign exchange rate risks. The cost of each derivative
contract is amortized over the life of the contract. The amortization
is classified with the results of the underlying hedged item. Certain
contracts are designated as hedges of specific assets within the investment
portfolio and to the extent those investments are marked to market, the hedge
contracts are also marked to market and included as an adjustment to the
underlying asset value. Other contracts are designated and accounted for as
hedges of certain of Transamerica's liabilities and outstanding indebtedness
and are not marked to market. Gains or losses on terminated hedges are
deferred and amortized over the remaining life of the hedged item.
Stock Based Compensation
Transamerica accounts for stock based compensation under the provisions of
Accounting Principles Board Opinion No. 25.
[54] Transamerica Corporation and Subsidiaries
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. In addition, the reserves for future benefits
for non interest-sensitive products are evaluated as if the unrealized gains
on debt securities were realized, and are adjusted for any resultant premium
deficiencies. The effect of these adjustments, net of federal income taxes, is
recorded in a separate component of stockholders' equity. There is no effect
on the income statement. Prior to 1994 investments in debt securities were
carried at amortized cost.
Earnings Per Share of Common Stock
Earnings per share of common stock are based on the weighted average number of
shares outstanding (66,627,000 in 1996, 68,758,000 in 1995 and 72,592,000 in
1994) after deduction of preferred dividends and, in 1994, premium and
expenses of $6.7 million on the partial redemption of the Series D preferred
stock.
[B] MINORITY INTEREST
In November 1996, two affiliates of Transamerica issued $100 million of 7.80%
and $225 million of 7.65% cumulative Capital Trust Pass-through Securities
payable December 1, 2026. The $100 million, 7.80% issue may be redeemed in
whole or in part, on or after December 1, 2006. Transamerica has agreed to
guarantee to pay in full any accrued and unpaid dividends declared, or the
redemption price including accrued and unpaid dividends, if the securities are
redeemed by the affiliates. Dividends on the outstanding Capital Trust Pass-
through Securities are cumulative and payable semi-annually in arrears.
In October 1994, an affiliate of Transamerica issued $200 million of
9.125% cumulative Monthly Income Preferred Securities payable October 25,
2024. The affiliate may redeem the outstanding Monthly Income Preferred
Securities, in whole or in part, on or after October 25, 1999. Transamerica
has agreed to guarantee to pay in full any accrued and unpaid dividends
declared, or the redemption price including accrued and unpaid dividends, if
the securities are redeemed by the affiliate. Dividends on the outstanding
Monthly Income Preferred Securities are cumulative and payable monthly in
arrears.
Dividends on the Capital Trust Pass-through Securities and Monthly Income
Preferred Securities are reported in the consolidated statement of income as a
component of other expense.
Transamerica Corporation and Subsidiaries [55]
[C] FINANCIAL INSTRUMENTS
INVESTMENTS
The cost and fair value of fixed maturities and equity securities at December
31, 1996 and 1995 were as follows:
(Amounts in millions) Gross Gross
Unrealized Unrealized
Cost Gains Losses Fair Value
- ---------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
U.S. Treasury securities and obligations of
U.S. government authorities and agencies $ 294.6 $ 25.5 $ 1.7 $ 318.4
Obligations of states and political subdivisions 291.9 11.1 0.6 302.4
Foreign governments 149.9 6.1 0.5 155.5
Corporate securities 15,002.7 809.1 111.2 15,700.6
Mortgage-backed securities 5,548.1 252.1 56.3 5,743.9
Public utilities 4,504.9 205.3 36.6 4,673.6
Redeemable preferred stock 84.6 13.2 6.3 91.5
_________ ________ ______ _________
Total fixed maturities $25,876.7 $1,322.4 $213.2 $26,985.9
========= ======== ====== =========
Equity securities $ 446.8 $ 612.7 $ 13.5 $ 1,046.0
========= ======== ====== =========
DECEMBER 31, 1995
U.S. Treasury securities and obligations of
U.S. government authorities and agencies $ 98.9 $ 7.5 $ 106.4
Obligations of states and political subdivisions 355.0 18.0 $ 0.6 372.4
Foreign governments 110.2 9.2 119.4
Corporate securities 11,803.4 1,133.2 8.6 12,928.0
Mortgage-backed securities 7,300.5 487.2 37.1 7,750.6
Public utilities 4,381.7 393.4 2.9 4,772.2
Redeemable preferred stock 23.7 3.9 0.5 27.1
_________ ________ ______ _________
Total fixed maturities $24,073.4 $2,052.4 $ 49.7 $26,076.1
========= ======== ====== =========
Equity securities $ 349.9 $ 360.3 $ 7.0 $ 703.2
========= ======== ====== =========
The cost and fair value of fixed maturities at December 31, 1996 by
contractual maturity, are shown below.
(Amounts in millions) Cost Fair Value
- -----------------------------------------------------------------------------
Due in one year or less $ 512.0 $ 544.6
Due after one year through five years 3,876.0 3,957.4
Due after five years through ten years 5,031.3 5,156.7
Due after ten years 10,909.3 11,583.3
_________ _________
20,328.6 21,242.0
Mortgage-backed securities 5,548.1 5,743.9
_________ _________
$25,876.7 $26,985.9
========= =========
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.
[56] Transamerica Corporation and Subsidiaries
The carrying values and estimated fair values of investments in mortgage loans
on real estate and loans to life insurance policyholders at December 31, 1996
and 1995 were as follows:
(Amounts in millions) Carrying Estimated
Value Fair Value
- -----------------------------------------------------------------------------
DECEMBER 31, 1996
Mortgage loans on real estate $681.5 $770.9
====== ======
Loans to life insurance policyholders $442.6 $416.4
====== ======
DECEMBER 31, 1995
Mortgage loans on real estate $523.7 $630.4
====== ======
Loans to life insurance policyholders $426.4 $408.1
====== ======
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) 1996 1995 1994
- ----------------------------------------------------------------------------
Net gain on sale of investments $ 81.9 $ 85.7 $ 50.1
Provision for impairment in value (9.1) (23.6) (20.7)
Accelerated amortization of deferred policy
acquisition costs (33.6) (9.2) (6.3)
______ ______ ______
$ 39.2 $ 52.9 $ 23.1
====== ====== ======
Proceeds from sales of fixed maturities and equity securities were $5.9
billion in 1996, $4 billion in 1995 and $2.7 billion in 1994. Gross gains of
$119.8 million in 1996, $95 million in 1995 and $107.5 million in 1994, and
gross losses of $41.3 million in 1996, $11.7 million in 1995 and $67.5 million
in 1994 were realized on those sales.
Transamerica and its subsidiaries use interest rate exchange and other
agreements to hedge the interest rate sensitivity of a portion of its fixed
maturity investments.
The net unrealized gain included in stockholders' equity as a result of
marking the fixed maturities and equity securities to fair value at December
31, 1996 and 1995 were as follows:
(Amounts in millions) 1996 1995
- ----------------------------------------------------------------------------
Net unrealized gain on fixed maturities $1,111.5 $1,990.3
Net unrealized gain on equity securities 599.2 353.3
Net unrealized gain (loss) on derivative instruments
which hedge a portion of investments in fixed
maturities (2.3) 12.4
Adjustment to deferred policy acquisition costs (306.6) (355.6)
Adjustment to life insurance policy liabilities (195.0) (339.0)
Deferred income taxes (422.4) (581.5)
________ ________
$ 784.4 $1,079.9
======== ========
Transamerica Corporation and Subsidiaries [57]
[C] FINANCIAL INSTRUMENTS [continued]
NOTES AND LOANS PAYABLE
(Amounts in millions) 1996 1995
- ----------------------------------------------------------------------------
TRANSAMERICA FINANCE CORPORATION:
Short-term bank loans, commercial paper and
current portion of long-term debt $ 1,229.0 $ 743.3
Long-term debt due subsequent to one year:
Notes and debentures; interest at 5.24% to
12.67%; maturing through 2011 3,474.4 3,603.7
Notes and debentures; interest at 13.8% to
13.88%; maturity value of $582.8 million;
maturing through 2012 171.5 162.0
Commercial paper and other notes at various
interest rates and terms supported by credit
agreements expiring through 2001 4,104.2 4,334.6
Subordinated notes and debentures; interest at
5.42% to 9.95%; maturing through 2003 702.5 784.6
Loans due to parent company 192.5 61.7
_________ _________
9,874.1 9,689.9
PARENT COMPANY AND OTHER SUBSIDIARIES:
Short-term bank loans, commercial paper and
current portion of long-term debt 12.3 253.0
Long-term debt due subsequent to one year:
Notes and debentures; interest at 5.89% to 10%;
maturing through 2020 424.0 223.1
Commercial paper and other notes at various
interest rates and terms supported by credit
agreements expiring through 2001 203.4 211.3
Notes at variable interest rates; maturing
through 1998 7.0 22.2
Less loans to Transamerica Finance Corporation (192.5) (61.7)
_________ _________
454.2 647.9
_________ _________
$10,328.3 $10,337.8
========= =========
The weighted average interest rate on short-term borrowings at December 31,
1996 and 1995 was 5.46% and 5.8%.
Assets with a net book value of $474.5 million at December 31, 1996,
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, 1997 are $1.2 billion in 1998, $2.6 billion in 1999, $2.7 billion in 2000
and $1.3 billion in 2001.
Under credit agreements with various banks, Transamerica and its
subsidiaries had the ability to borrow up to $5.2 billion with interest at
variable rates at December 31, 1996. There were no borrowings outstanding
under these credit lines at that date. These credit agreements, which expire
through 2001, require a fee on the commitment.
Transamerica and its subsidiaries use interest rate exchange agreements
to hedge the interest rate sensitivity of a portion of outstanding
indebtedness.
Interest payments, net of amounts received
[58] Transamerica Corporation and Subsidiaries
from interest rate exchange agreements, totaled $705 million in 1996, $696
million in 1995 and $661.8 million in 1994.
The estimated fair value of notes and loans payable, using rates
currently available for debt with similar terms and maturities, was $10.7
billion at December 31, 1996 and $10.8 billion at December 31, 1995.
CONCENTRATION OF RISK AND
FAIR VALUE OF RECEIVABLES
Transamerica's consumer and commercial lending operations engage 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 borrowers are
concentrated in one industry or geographic area.
Transamerica's finance receivables include $3.7 billion, net of unearned
finance charges, of real estate secured loans, principally first and second
mortgages secured by residential properties of which approximately 34% were
located in California. The commercial and other finance receivables portfolio
represents lending arrangements with approximately 120,000 customers. At
December 31, 1996, the portfolio included 12 customers with individual
balances in excess of $20 million. These accounts represented 13% of total
commercial and other net finance receivables outstanding at December 31,
1996.
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 and other finance receivables 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 receivable 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
receivables. For variable rate commercial loans the carrying amount represents
a reasonable estimate of fair value.
The carrying amounts and estimated fair values of the finance receivable
portfolio at December 31, 1996 and 1995 were as follows:
(Amounts in millions) Carrying Estimated
Value Fair Value
- -----------------------------------------------------------------------------
DECEMBER 31, 1996
Fixed rate receivables--
Consumer $3,885.4 $4,464.0
Commercial and other 1,120.6 1,149.9
Variable rate receivables--
Commercial 2,897.8 2,897.8
________ ________
$7,903.8 $8,511.7
======== ========
DECEMBER 31, 1995
Fixed rate receivables--
Consumer $4,884.9 $5,521.7
Commercial and other 680.9 697.6
Variable rate receivables--
Commercial 2,641.2 2,641.2
________ ________
$8,207.0 $8,860.5
======== ========
Transamerica Corporation and Subsidiaries [59]
[C] 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. The carrying amounts and estimated fair values of the liabilities
for investment-type contracts at December 31, 1996 and 1995 were as follows:
(Amounts in millions) Carrying Estimated
Value Fair Value
- ------------------------------------------------------------------------------
DECEMBER 31, 1996
Single and flexible premium deferred annuities $ 6,962.5 $ 6,400.6
Single premium immediate annuities 4,115.0 4,477.0
Guaranteed investment contracts 3,153.8 3,207.3
Other deposit contracts 3,894.8 3,913.1
_________ _________
$18,126.1 $17,998.0
========= =========
- -----------------------------------------------------------------------------
DECEMBER 31, 1995
Single and flexible premium deferred annuities $ 8,080.1 $ 7,518.2
Single premium immediate annuities 4,124.0 4,677.7
Guaranteed investment contracts 2,958.9 2,998.0
other deposit contracts 2,785.7 2,848.3
_________ _________
$17,948.7 $18,042.2
========= =========
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). Transamerica does not use derivative financial
instruments for trading or speculative purposes, nor is Transamerica a party
to any leveraged derivative contracts. While Transamerica is exposed to credit
risk in the event of nonperformance by the other party, the likelihood of
nonperformance is considered low due to the high credit rating of the
counterparties. At December 31, 1996 and 1995, all of Transamerica's
derivative financial instruments were with financial institutions rated A or
better by one or more of the major credit rating agencies.
ASSET AND LIABILITY 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. Transamerica purchases
swaptions, which 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. Interest rate swap agreements are
intended to help Transamerica to more
[60] Transamerica Corporation and Subsidiaries
closely match the cash flow received from its assets to the payments on its
liabilities, and 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.
Transamerica's interest rate cap agreements limit the amount of interest
paid in the event interest rates rise above specified levels.
At December 31, 1996 and 1995, the unamortized cost of the instruments
that hedge assets was $76 million and $15.9 million, and the fair value of
these asset hedges comprised gross obligations to counterparties of $17.5
million and $9.7 million and gross benefits from counterparties of $91.2
million and $38 million. The net unrealized gain (loss) on derivative
contracts that hedge assets is included in stockholders' equity to offset the
effect of changes to the fair value of the underlying hedged asset. At
December 31, 1996 and 1995 the net after tax unrealized gain (loss) included
in stockholders' equity from marking asset hedges to fair value was $(1.5)
million and $8.1 million.
The net present value of the liability hedges offsets changes in the
fair value of the hedged liabilities, which are also carried at amortized
cost. The fair value of the liability hedges at December 31, 1996 and 1995
were gross obligations of $29.2 million and $32.9 million and gross benefits
of $69.2 million and $84.5 million resulting in a net benefit from counter-
parties of $40 million at December 31, 1996 and a net benefit from
counterparties of $51.6 million at December 31, 1995.
Transamerica Corporation and Subsidiaries [61]
[C] FINANCIAL INSTRUMENTS [continued]
At December 31, 1996 and 1995 asset hedges comprised:
Weighted Weighted
(Dollar amounts in millions) Notional Average Fixed Average Floating
Amount Interest Rate Interest Rate
- ---------------------------------------------------------------------------------------------------------
1996
Interest rate swap agreements--Transamerica receives:
Floating rate interest income, pays fixed rate
interest expense $ 308.9 6.8% 6.5%
======== ==== ====
Fixed rate interest income, pays floating rate
interest expense $ 240.0 6.7% 6.4%
======== ==== ====
Floating rate interest income based on one index (at
a weighted average interest rate of 5.9%) and pays
floating rate interest expense based on another
index (at a weighted average interest rate of 6.6%) $ 298.6
========
Swaptions $8,427.6 4.5%
======== ====
Interest rate floor agreements $ 560.5 6.5%
======== ====
Interest rate cap agreements $ 10.0 5.5%
======== ====
S&P call options $ 8.8
========
1995
Interest rate swap agreements--Transamerica receives:
Floating rate interest income, pays fixed rate
interest expense $ 235.2 8.0% 6.3%
======== ==== ====
Fixed rate interest income, pays floating rate
interest expense $ 140.0 5.7% 5.9%
======== ==== ====
Floating rate interest income based on one index
(6.3%) and pays floating rate interest expense
based on another index (5.0%) $ 65.0
========
Interest rate floor agreements $ 560.5 6.5%
======== ====
At December 31, 1996 and 1995 liability hedges comprised:
Weighted Weighted
Notional Average Fixed Average Floating
(Dollar amounts in millions) Amount Interest Rate Interest Rate
- ---------------------------------------------------------------------------------------------------------
1996
Interest rate swap agreements--Transamerica pays:
Floating rate interest expense, receives fixed rate
interest income $2,662.6 6.4% 5.7%
======== ==== ====
Fixed rate interest expense, receives floating rate
interest income $ 672.1 6.3% 5.5%
======== ==== ====
Floating rate interest expense based on one index (at
a weighted average interest rate of 5.8%) and
receives floating rate interest income based on
another index (at a weighted average interest rate
of 3.7%) $ 6.6
========
Cross currency swaps and foreign interest rate swaps $ 116.5
========
1995
Interest rate swap agreements--Transamerica pays:
Floating rate interest expense, receives fixed rate
interest income $1,029.7 6.4% 5.9%
======== ==== ====
Fixed rate interest expense, receives floating rate
interest income $ 793.9 7.1% 5.8%
======== ==== ====
Floating rate interest expense based on one index
(5.9%) and receives floating rate interest income
based on another index (5.9%) $ 253.0
========
Swaptions $1,267.1 5.3%
======== ====
Interest rate cap agreements $ 250.0 6.5%
======== ====
Cross currency swaps and foreign interest rate swaps $ 144.5
========
[62] Transamerica Corporation and Subsidiaries
[D] INCOME TAXES
The provision for income taxes comprised:
(Amounts in millions) 1996 1995 1994
- -----------------------------------------------------------------------------
Federal current $ 42.3 $ 69.9 $215.4
Federal deferred 68.5 128.8 12.1
State 2.8 19.1 22.6
Foreign 15.2 16.7 12.3
______ ______ ______
$128.8 $234.5 $262.4
====== ====== ======
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, 1996 and 1995
were as follows:
(Amounts in millions) 1996 1995
- -----------------------------------------------------------------------------
Deferred tax assets:
Allowance for losses $ 112.5 $ 75.7
Impairment of investments 36.4 57.3
Life insurance policy liabilities 575.3 585.3
Loss and tax credits carryforward 57.0 24.4
Other 301.0 212.5
________ ________
1,082.2 955.2
Deferred tax liabilities:
Deferred policy acquisition costs 726.1 696.8
Accelerated depreciation 617.0 446.4
Unrealized gain on marking investments to fair value 422.4 581.5
Discount amortization on notes and loans payable 71.6 68.7
Other 96.0 53.3
________ ________
1,933.1 1,846.7
________ ________
Net deferred tax liability $ 850.9 $ 891.5
======== ========
The difference between federal income taxes computed at the statutory rate and
the provision for income taxes was:
(Amounts in millions) 1996 1995 1994
- -----------------------------------------------------------------------------
Federal income taxes at statutory rate $204.8 $246.8 $241.6
State income taxes 1.8 12.4 14.7
Prior year items (63.8) (30.0)
Other (14.0) 5.3 6.1
______ ______ ______
$128.8 $234.5 $262.4
====== ====== ======
Income tax payments totaled $97.5 million in 1996, $148.3 million in 1995 and
$71.9 million in 1994.
Transamerica Corporation and Subsidiaries [63]
[E] BUSINESS SEGMENT INFORMATION
(Amounts in millions) 1996 1995 1994
- ----------------------------------------------------------------------------
REVENUES
Life insurance $ 3,949.7 $ 3,866.5 $ 3,289.6
Consumer lending 759.8 782.5 690.6
Commercial lending 432.8 423.7 384.3
Leasing 765.6 733.9 637.9
Real estate services 356.9 253.5 264.7
Other* (37.2) 41.0 87.4
_________ _________ _________
$ 6,227.6 $ 6,101.1 $ 5,354.5
========= ========= =========
OPERATING PROFIT AS DEFINED BY
FINANCIAL ACCOUNTING STANDARD NO. 14**
Life insurance $ 505.1 $ 458.4 $ 403.2
Consumer lending (76.5) 134.0 148.1
Commercial lending 103.4 111.8 72.0
Leasing 120.2 119.7 101.9
Real estate services 148.0 74.5 112.5
_________ _________ _________
800.2 898.4 837.7
Unallocated interest and other
expenses* (163.7) (168.9) (125.8)
Interest expense for real estate
services (51.4) (24.5) (22.3)
Income tax expense (128.8) (234.5) (262.4)
_________ _________ _________
Net income $ 456.3 $ 470.5 $ 427.2
========= ========= =========
ASSETS
Life insurance $36,482.0 $35,099.8 $28,967.1
Consumer lending 4,251.6 5,308.3 4,475.4
Commercial lending 4,023.5 3,423.4 3,363.9
Leasing 3,928.5 3,477.8 3,184.2
Real estate services 1,531.5 851.6 637.6
Other* (342.2) (216.4) (234.4)
_________ _________ _________
$49,874.9 $47,944.5 $40,393.8
========= ========= =========
ADDITIONS, AT COST,
TO PROPERTY AND EQUIPMENT
Leasing $ 926.2 $ 573.3 $ 1,525.3
Other 65.5 80.9 70.2
_________ _________ _________
$ 991.7 $ 654.2 $ 1,595.5
========= ========= =========
DEPRECIATION
Leasing $ 255.1 $ 236.6 $ 201.7
Other 58.0 53.9 46.7
_________ _________ _________
$ 313.1 $ 290.5 $ 248.4
========= ========= =========
*In 1995 Transamerica completed the sale of its asset management operations.
For the years ended December 31, 1995 and 1994 revenues of the asset
management operations were $31.4 million and $76.1 million and operating
profit was $26.8 million and $30.9 million. As of December 31, 1994 assets
were $54.5 million. Other revenues and other assets include intercompany
eliminations.
**For income by segment as used for management purposes, see table included
on page 25 of the financial review.
[64] Transamerica Corporation and Subsidiaries
[F] 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. Transamerica's funding policy is to make
contributions as necessary to provide assets sufficient to meet its obligation
to plan members in accordance with the requirements of the Employee Retirement
Income Security Act of 1974.
A summary of the components of net periodic pension cost follows:
(Amounts in millions) 1996 1995 1994
- ----------------------------------------------------------------------------
Service cost--benefits earned during the
period $ 16.7 $ 14.2 $ 17.9
Interest cost on projected benefit obligation 51.6 52.3 47.7
Actual return (gain) loss on plan assets (164.9) (259.2) 19.3
Deferral of current gains (losses) varying
from expected return 97.4 199.2 (71.7)
Net amortization and deferrals (0.6) 3.8 6.0
_______ _______ ______
Total pension cost $ 0.2 $ 10.3 $ 19.2
======= ======= ======
The following table sets forth the amounts recognized in the consolidated
statement of financial position for the pension plans:
(Amounts in millions) 1996 1995
- ----------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation* $ 710.5 $715.3
======== ======
Accumulated benefit obligation $ 719.6 $723.8
======== ======
Projected benefit obligation, including effects
of future salary increases $ 779.1 $762.0
Plan assets at fair value 1,119.4 991.5
________ ______
Excess of plan assets over projected benefit
obligation $ 340.3 $229.5
======== ======
The excess of plan assets over projected benefit
obligation comprises:
Net pension liability (asset) $ (29.1) $(34.0)
Unrecognized net gain arising since January 1, 1986 381.7 278.1
Unrecognized prior service cost (16.9) (20.6)
Unrecognized net obligation at January 1, 1986
net of amortization (4.8) (6.0)
Adjustment required to recognize minimum
liability 9.4 12.0
________ ______
$ 340.3 $229.5
======== ======
*A portion of the vested benefit obligation is unconditionally guaranteed by
Transamerica Occidental Life Insurance Company, a wholly owned subsidiary
of Transamerica.
The projected benefit obligation was determined using a weighted average
discount rate of 7% and an assumed rate of compensation increase of 5.50%. The
expected long-term rate of return on plan assets was 8.25% in 1996 and 1995
and 8.75% in 1994.
Transamerica Corporation and Subsidiaries [65]
[G] STOCK OPTIONS
Transamerica has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for stock-based compensation because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options.
At December 31, 1996, under Transamerica's stock option plans, 18,606,962
shares of common stock (15,389,110 shares at December 31, 1995) were reserved
principally for sale to key employees of the Corporation and subsidiaries.
Except as noted below for the 1995 Performance Stock Option Plan, all options
granted have 10 year terms and generally vest and become exercisable ratably
over four years. Options were exercised for 778,798 shares in 1996, 1,068,068
shares in 1995 and 194,823 shares in 1994, at aggregate option prices of $31.9
million, $41.1 million and $7 million. In February 1997, options for 1,464,200
shares were granted at an option price equal to market value on the date
granted.
In December 1996, Transamerica's board of directors approved the 1996
Stock Option Plan. Under the terms of the plan, 4,000,000 shares of common
stock were reserved principally for sale to key employees other than officers
of Transamerica. At December 31, 1996, no options had been granted.
In April 1995, the stockholders approved the 1995 Performance Stock
Option Plan and, under the terms of the Plan, Transamerica has made grants of
nonqualified stock options totaling 5 million shares. Transamerica's share
price on the date of the initial grant was $50.75. 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 would have been forfeited if the Corporation's common stock did not
reach $82 within five years from the date of grant. These options vested in
February 1997. 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. Options
granted with exercise prices of $82 and $100 will vest only if during a period
of ten trading days out of any 30 consecutive trading days the closing price
of the Corporation's common stock equals or exceeds the exercise price.
Options for 80,000 shares in 1996 and 140,000 shares in 1995 were cancelled
due to forfeiture. Forfeited shares may be reissued.
Pro forma information regarding net income and earnings per share is
required by Statement No. 123, which also requires the information be
determined as if Transamerica had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for 1996 and 1995: risk-free interest rate of 5.14% and 7.10%;
dividend yields of 2.6% and 3.7%; volatility factors of the expected market
price of Transamerica's common stock over the expected life of the option of
0.175 and 0.164; and a weighted average expected option life of four years.
In management's opinion, existing stock option valuation models do not
provide an entirely reliable measure of the fair value of non transferable
employee stock options with vesting restrictions.
[66] Transamerica Corporation and Subsidiaries
The following table presents Transamerica's net income and earnings per share,
and pro forma disclosures as if the estimated fair value of the options is
recognized rateably in net income over the options' vesting period.
(Amounts in millions, except per share data) 1996 1995
- -----------------------------------------------------------------------------
Net income $456.3 $470.5
Pro forma net income* $451.3 $468.0
Earnings per share $ 6.59 $ 6.58
Pro forma earnings per share* $ 6.52 $ 6.54
*As Statement No. 123 is applicable to options granted subsequent to
December 31, 1994, the full effect of its implementation will not be
reflected in pro forma disclosures until 1998.
Transamerica's stock option activity and related information for the years
ended December 31 follow:
1996 1995
- -------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Options Exercise Options Exercise
(thousands) Price (thousands) Price
- -------------------------------------------------------------------------------------------------------
Outstanding--beginning of year 11,616 $63.67 6,679 $42.95
Granted 1,635 77.77 7,070 81.63
Exercised (778) 40.91 (1,068) 38.46
Forfeited (466) 74.34 (1,065) 78.20
Outstanding--end of year 12,007 $66.65 11,616 $63.67
Exercisable at end of year 4,001 $43.65 3,533 $40.87
Weighted average fair value of options granted
during the year, excluding the Performance Stock
Option Plan $12.73 $ 9.09
Weighted average fair value of options granted under
the Performance Stock Option Plan during the year $ 6.91 $ 1.68
====== ====== ====== ======
Outstanding and exercisable options at December 31, 1996:
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------------
Number
Range of Outstanding Weighted Avg Weighted Avg Number Weighted Avg
Exercise at 12/31/96 Remaining Exercise Exercisable Exercise
Prices (000's) Contractual Life Price (000's) Price
- -------------------------------------------------------------------------------------------------------
$32--$42 2,195 3.9 years $38.22 2,195 $38.22
$43--$55 3,466 7.1 years 51.14 1,756 49.85
$56--$76 2,381 8.8 years 70.66 50 64.47
$77--$100 3,965 5.5 years 93.94 - -
____________________________________________________________________________________________________
12,007 4,001
====================================================================================================
Transamerica Corporation and Subsidiaries [67]
[H] CAPITAL STOCK
At December 31, 1996 Transamerica had 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. In
December 1996, Transamerica announced the redemption of all of the outstanding
DARTS. The redemption was completed in February 1997.
Transamerica also had outstanding 3,601,827 depositary shares at December
31, 1996, each of which represents a 1/20 interest in a share of 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. In February 1997, Transamerica completed the redemption of all its
Series D Preferred Stock for total consideration of $94 million.
At December 31, 1996, 5,000,000 shares of preference stock (without par
value) were authorized but unissued.
In October 1996, Transamerica acquired Trans Ocean Ltd. in exchange for
approximately 1.6 million shares ($112.7 million) of Transamerica common
stock.
[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, 1996 approximately $3.7 billion is so restricted,
and $0.7 billion is free for remittance to Transamerica subject to investment
and operating requirements.
[J] COMMITMENTS AND CONTINGENCIES
In connection with the 1993 sale of Transamerica Insurance Group, a subsidiary
of Transamerica 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 $350.5 million at December 31, 1996 by providing
letters of credit aggregating $160 million and by placing certain assets in a
trust. At December 31, 1996, the fair value of the assets in the trust was
$214.9 million. 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.
Substantially all leases of Transamerica and its subsidiaries are
operating leases principally for the rental of real estate. Total rental
expense amounted to $80.9 million in 1996, $82.7 million in 1995 and $99.9
million in 1994.
Transamerica and its subsidiaries are defendants in various legal actions
arising from their operations. These include legal actions, similar to those
faced by many other major life insurers, which allege damages related to sales
practices of non-guaranteed premium policies since the early 1980s.
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 subsidiaries.
[68] Transamerica Corporation and Subsidiaries
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA
1996 March 31 June 30 September 30 December 31 1996 Total
- -------------------------------------------------------------------------------------------------------------------
Revenues $1,493.7 $1,515.0 $1,592.3 $1,626.6 $6,227.6
======== ======== ======== ======== ========
Income before investment transactions $ 106.8 $ 95.2 $ 114.9 $ 113.9 $ 430.8
Gain (loss) on investment transactions 8.5 10.7 (1.0) 7.3 25.5
________ ________ ________ ________ ________
Net income $ 115.3 $ 105.9 $ 113.9 $ 121.2 $ 456.3
======== ======== ======== ======== ========
Earnings per share of common stock:
Income before investment transactions $ 1.51 $ 1.36 $ 1.68 $ 1.66 $ 6.21
Gain (loss) on investment transactions 0.12 0.16 (0.01) 0.11 0.38
________ ________ ________ ________ ________
Net income $ 1.63 $ 1.52 $ 1.67 $ 1.77 $ 6.59
======== ======== ======== ======== ========
High and low sales prices
for common shares $78 7/8-71 $84 1/2-71 3/8 $ 83-67 $ 82 3/8-70 $ 84 1/2-67
1995 March 31 June 30 September 30 December 31 1995 Total
- -------------------------------------------------------------------------------------------------------------------
Revenues $1,420.5 $1,581.0 $1,581.2 $1,518.4 $6,101.1
======== ======== ======== ======== ========
Income before investment transactions $ 94.3 $ 111.2 $ 122.3 $ 108.3 $ 436.1
Gain on investment transactions 2.0 6.6 24.7 1.1 34.4
________ ________ ________ ________ ________
Net income $ 96.3 $ 117.8 $ 147.0 $ 109.4 $ 470.5
======== ======== ======== ======== ========
Earnings per share of common stock:
Income before investment transactions $ 1.30 $ 1.54 $ 1.72 $ 1.52 $ 6.08
Gain on investment transactions 0.03 0.09 0.36 0.02 0.50
________ ________ ________ ________ ________
Net income $ 1.33 $ 1.63 $ 2.08 $ 1.54 $ 6.58
======== ======== ======== ======== ========
High and low sales prices
for common shares $59-49 1/2 $61 1/8-55 3/4 $ 71 1/2-58 $77 1/2-65 3/4 $77 1/2-49 1/2
<FN>
(Dollar amounts in millions except for share data)
Note A. On February 21, 1997 the closing sales price for Transamerica common shares was $87 and there were 45,900
common stockholders of record.
Transamerica Corporation and Subsidiaries [71]
SELECTED ELEVEN-YEAR FINANCIAL DATA
(Dollar amounts in millions
except for share data) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------
Revenues $ 6,227.6 $ 6,101.1 $ 5,354.5 $ 4,813.3 $ 4,550.9
Income from continuing operations $ 456.3 $ 470.5 $ 427.2 $ 447.5 $ 334.0
Earnings per share of common
stock (Note A):
Income (loss) from continuing
operations $ 6.59 $ 6.58 $ 5.45 $ 5.40 $ 4.00
FINANCIAL POSITION
Total assets $49,874.9 $47,944.5 $40,393.8 $36,050.5 $33,290.9
Notes and loans payable:
Long-term debt $ 9,087.0 $ 9,341.5 $ 7,489.1 $ 5,681.0 $ 6,510.5
OTHER DATA
Per share of common stock:
Dividends declared (Note E) $ 2.00 $ 2.00 $ 2.00 $ 2.00 $ 2.00
<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 and in 1994, premium and
expenses on the partial redemption of the Series D preferred stock.
Note E. Quarterly dividends per share were 50 cents in 1996 and 1995.
[72] 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, and Zurich.
[82] Transamerica Corporation and Subsidiaries