-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q4UDLBDVFYpNqgDiwMsPMhdc2tvUHoQ/TZaRgiPkTSW4GYMbSFWVnmdn9LBwLORE nITD9ZgH0JnGq5eGnpCpaA== 0000099189-97-000015.txt : 19971117 0000099189-97-000015.hdr.sgml : 19971117 ACCESSION NUMBER: 0000099189-97-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSAMERICA CORP CENTRAL INDEX KEY: 0000099189 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 940932740 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02964 FILM NUMBER: 97717880 BUSINESS ADDRESS: STREET 1: 600 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4159834000 MAIL ADDRESS: STREET 1: 600 MONTGOMERY STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94111 10-Q 1 Page 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM 10-Q ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended September 30, 1997 Commission File Number 1-2964 ------------------ TRANSAMERICA CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-0932740 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 600 Montgomery Street San Francisco, California 94111 (Address of principal executive offices) (Zip Code) (415) 983-4000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares of Common Stock, $1 par value, outstanding as of close of business on October 31, 1997: 62,836,571 shares, after deducting 16,901,891 shares in treasury. Page 2 TRANSAMERICA CORPORATION FORM 10-Q Part I. Financial Information Item 1. Financial Statements. The following unaudited consolidated financial statements of Transamerica Corporation and Subsidiaries, for the periods ended September 30, 1997 and 1996, and the balance sheet as of December 31, 1996 do not include complete financial information and should be read in conjunction with the Consolidated Financial Statements filed with the Commission in Transamerica's Annual Report on Form 10-K for the year ended December 31, 1996. The financial information presented in the financial statements included in this report reflects all adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. Results for the interim periods are not necessarily indicative of the results for the entire year for most of the Corporation's businesses. On September 18, 1997, Transamerica announced a definitive agreement to acquire approximately $1.23 billion of net receivables and other assets of the inventory financing, consumer financing and international factoring businesses of Whirlpool Financial Corporation for a total purchase price of $1.35 billion, subject to final closing adjustments. On October 16, 1997, Transamerica announced that it had completed the acquisition of Whirlpool Financial Corporation's inventory finance business in the United States, Canada and Mexico, as well as its international factoring business in Argentina, for $759 million in cash. The acquisition of most of the remaining assets of the international factoring operations was completed by November 3, 1997, for approximately $170 million in cash. The acquisition of the consumer finance business, including Whirlpool Financial National Bank, a credit card bank, will close separately upon receipt of appropriate regulatory approval. On June 23, 1997, Transamerica sold its branch based consumer lending operation as part of its strategy to redeploy capital while moving ahead with a plan to build a new, centralized real estate secured lending operation. Gross proceeds from the sale were $3.9 billion, or $1.1 billion after repayment of associated debt. As a result of the sale, second quarter results included an after tax gain of $275 million after taking into account writedowns of intangibles and other items. In addition, real estate secured loans, non real estate secured loans and foreclosed properties and other repossessed assets with a carrying value of $171.5 million remain as of September 30, 1997 which will be sold or liquidated separately. In October 1997, Transamerica Corporation completed the sale of another $158.7 million of contractual finance receivables and foreclosures in process for gross proceeds of $117.8 million subject to closing adjustments. * * * * * * * Primary earnings per share were calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period and for the periods ended September 30, 1997 the dilutive effect of common shares contingently issuable from the exercise of stock options, using the treasury stock method. Earnings available to common stockholders are computed by deducting preferred dividends and preferred stock redemption costs from net income. The computation of fully diluted earnings per share is based upon the weighted average number of common shares outstanding during the period plus the dilutive effect of common shares contingently issuable from the exercise of stock options, using the treasury stock method. Page 3 For years and quarters ending after December 15, 1997 Transamerica will report its earnings per share in accordance with the Financial Accounting Standards Board's Statement No. 128 - Earnings Per Share. Previously reported earnings per share will be restated. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, for pro forma disclosure of Transamerica's earnings per share computed in accordance with this standard. The consolidated ratios of earnings to fixed charges were computed by dividing income before fixed charges and income taxes by the fixed charges. Fixed charges consist of interest and debt expense, dividends declared on preferred securities issued by affiliates and one-third of rent expense, which approximates the interest factor. Page 4 TRANSAMERICA CORPORATION AND SUBSIDIARIES ----------------- CONSOLIDATED BALANCE SHEET Assets
September 30, December 31, 1997 1996 Investments, principally of life insurance subsidiaries: Fixed maturities $28,337.7 $26,985.9 Equity securities 1,666.2 1,046.0 Mortgage loans and real estate 757.5 745.5 Loans to life insurance policyholders 455.3 442.6 Short-term investments 220.8 165.2 --------- --------- 31,437.5 29,385.2 Finance receivables 4,710.9 8,697.9 Less unearned fees ($326.2 in 1997 and $437.6 in 1996) and allowance for losses 424.0 794.1 --------- --------- 4,286.9 7,903.8 Cash and cash equivalents 95.9 471.8 Trade and other accounts receivable 2,210.0 1,933.9 Property and equipment, less accumulated depreciation of $1,425.3 in 1997 and $1,309.9 in 1996: Land, buildings and equipment 408.5 436.8 Equipment held for lease 3,115.0 3,118.5 Deferred policy acquisition costs 2,110.4 2,138.2 Separate account assets 5,236.1 3,527.9 Goodwill, less accumulated amortization of $151.8 in 1997 and $143.9 in 1996 364.8 389.3 Assets held for sale 171.5 86.5 Other assets 532.1 483.0 --------- --------- $49,968.7 $49,874.9 ========= ========= (Amounts in millions)
Page 4 TRANSAMERICA CORPORATION AND SUBSIDIARIES ----------------- CONSOLIDATED BALANCE SHEET (Continued) Liabilities and Stockholders' Equity
September 30, December 31, 1997 1996 Life insurance policy liabilities $29,680.3 $28,542.8 Notes and loans payable, principally of finance subsidiaries, of which $1,016.8 in 1997 and $1,241.3 in 1996 matures within one year 6,413.2 10,328.3 Accounts payable and other liabilities 2,038.7 1,899.0 Income taxes 1,496.2 911.3 Separate account liabilities 5,236.1 3,527.9 Minority interest in preferred securities of affiliates 525.0 525.0 Stockholders' equity: Preferred Stock ($100 par value): Authorized--1,200,000 shares; issuable in series, cumulative Outstanding--Dutch Auction Rate Trans- ferable Securities, 2,250 shares in 1996, at liquidation preference of $100,000 per share 225.0 Outstanding--Series D, 180,091 shares in 1996, at liquidation preference of $500 per share, cumulative dividend rate of 8.5% 90.0 Common Stock ($1 par value): Authorized--150,000,000 shares Outstanding--62,736,288 shares in 1997 and 65,968,708 shares in 1996, after deducting 17,002,174 shares and 13,769,754 shares in treasury 62.7 66.0 Additional paid-in capital 83.0 Retained earnings 3,187.9 2,920.2 Net unrealized gain from investments marked to fair value 1,363.0 784.4 Foreign currency translation adjustments (34.4) (28.0) --------- --------- 4,579.2 4,140.6 --------- --------- $49,968.7 $49,874.9 ========= ========= (Amounts in millions except for share data)
Page 5 TRANSAMERICA CORPORATION AND SUBSIDIARIES ---------------------- CONSOLIDATED STATEMENT OF INCOME
Nine months ended Three months ended September 30, September 30, 1997 1996 1997 1996 REVENUES Investment income $ 1,640.2 $ 1,566.9 $ 554.9 $ 530.3 Life insurance premiums and related income 1,541.1 1,350.8 573.7 508.2 Finance charges and other fees 633.5 903.1 142.1 296.5 Leasing revenues 565.3 496.7 194.8 168.5 Real estate and tax service revenues 219.8 191.0 73.2 71.5 Gain (loss) on investment transactions 3.0 28.0 (11.5) (1.6) Gain on sale of consumer lending branch operation 469.0 Other 81.6 64.5 33.7 18.9 --------- --------- --------- -------- 5,153.5 4,601.0 1,560.9 1,592.3 EXPENSES Life insurance benefits 2,291.7 2,076.1 815.4 751.1 Life insurance underwriting, acquisition and other expenses 544.7 473.3 184.4 157.0 Interest and debt expense 418.3 514.4 110.3 170.4 Leasing operating and maintenance costs 340.7 275.5 113.1 92.5 Provision for losses on receivables and assets held for sale 48.0 249.6 3.0 148.1 Other, including administrative and general expenses 601.1 610.4 175.5 207.4 --------- --------- --------- -------- 4,244.5 4,199.3 1,401.7 1,526.5 --------- --------- --------- -------- 909.0 401.7 159.2 65.8 Income taxes 290.1 66.6 9.2 (48.1) --------- --------- --------- -------- Net Income $ 618.9 $ 335.1 $ 150.0 $ 113.9 ========= ========= ========= ======== Earnings per share of common stock: Primary: Income before gain on investment transactions $ 9.12 $ 4.55 $ 2.42 $ 1.68 Gain (loss) on investment transactions 0.02 0.27 (0.12) (0.01) --------- --------- -------- --------- Net Income $ 9.14 $ 4.82 $ 2.30 $ 1.67 ========= ========= ======== ========= Fully diluted: Income before gain on investment transactions $ 9.10 $ 4.44 $ 2.42 $ 1.65 Gain (loss) on investment transactions 0.02 0.27 (0.12) (0.01) --------- --------- -------- --------- Net Income $ 9.12 $ 4.71 $ 2.30 $ 1.64 ========= ========= ======== ========= Dividends per share of common stock $ 1.50 $ 1.50 $ 0.50 $ 0.50 ========= ========= ======== ========= Ratio of earnings to fixed charges 2.90 1.74 ==== ==== (Amounts in millions except for per share data)
Page 6 TRANSAMERICA CORPORATION AND SUBSIDIARIES ----------------- CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Nine months ended September 30, 1997 1996 Balance at beginning of year $2,920.2 $2,866.0 Net income 618.9 335.1 Dividends on common stock (96.3) (99.2) Dividends on preferred stock (2.6) (12.8) Treasury stock purchased (252.3) (252.9) -------- -------- Balance at end of period $3,187.9 $2,836.2 ======== ======== CONSOLIDATED STATEMENT OF CASH FLOWS Nine months ended September 30, 1997 1996 OPERATING ACTIVITIES Net income $ 618.9 $ 335.1 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of consumer lending branch operation (275.0) Increase in life insurance policy liabilities, excluding policyholder balances on interest-sensitive policies 388.0 764.9 Amortization of policy acquisition costs 180.9 180.3 Policy acquisition costs deferred (335.2) (278.5) Depreciation and amortization 256.8 237.2 Other 91.1 12.7 --------- --------- Net cash provided by operations 925.5 1,251.7 INVESTING ACTIVITIES Finance receivables originated (16,681.0) (13,769.9) Finance receivables collected and sold 16,819.8 13,541.3 Purchase of investments (8,734.7) (6,218.9) Sales and maturities of investments 7,595.2 4,431.7 Proceeds from sale of branch based consumer lending operation 3,860.0 Other (294.7) (163.4) --------- --------- Net cash provided (used) by investing activities 2,564.6 (2,179.2) FINANCING ACTIVITIES Proceeds from debt financing 3,310.7 4,588.7 Payment of notes and loans (7,169.3) (4,397.2) Receipts from interest-sensitive policies credited to policyholder account balances 5,842.5 5,183.6 Return of policyholder balances on interest-sensitive policies (5,097.3) (4,049.9) Treasury stock purchases (424.0) (290.9) Redemption of preferred stock (318.9) Other common stock transactions 89.2 34.7 Dividends (98.9) (112.0) -------- ------- Net cash provided (used) by financing activities (3,866.0) 957.0 -------- ------- Increase (decrease) in cash and cash equivalents (375.9) 29.5 Cash and cash equivalents at beginning of year 471.8 67.6 ------ ---- Cash and cash equivalents at end of period $ 95.9 $ 97.1 ======= ======= (Amounts in millions)
Page 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Consolidated Results Transamerica's net income for the first nine months of 1997 increased $283.8 million (85%), compared to the first nine months of 1996. Net income for the first nine months of 1997 included net after tax gains from investment transactions aggregating $1.6 million compared to $18.2 million in the first nine months of 1996. In the first nine months of 1997 income before investment transactions increased $300.4 million (95%) over the first nine months of 1996. The 1997 period included a $275 million after tax gain from the sale of the branch based consumer lending business and a $44.1 million benefit from the resolution of prior years' tax matters. Income before investment transactions for the 1996 period included $63.8 million in benefits from the resolution of prior years' tax matters and a $9.1 million after tax benefit from the elimination of contingencies associated with the 1995 sale of assets by the commercial lending operation and contingencies associated with previously discontinued businesses. Offsetting the 1996 benefits was a $72 million after tax charge at the consumer lending operation primarily for increased loss reserves. Excluding these items, income before investment transactions for the first nine months of 1997 decreased $17.8 million (6%) due primarily to decreases in consumer lending, leasing and life insurance operating results and higher unallocated interest and other expenses. Partially offsetting these decreases were increased real estate and commercial lending operating results. Transamerica's net income for the third quarter of 1997 increased $36.1 million (32%), compared to the third quarter of 1996. Net income for the third quarter of 1997 included net after tax losses from investment transactions aggregating $7.7 million compared to a loss of $1 million in the third quarter of 1996. In the third quarter of 1997 income before investment transactions increased $42.8 million (37%) over the third quarter of 1996. Income before investment transactions in the third quarter of 1997 included the $44.1 million tax benefit discussed in the preceding paragraph. Income before investment transactions in the third quarter of 1996 included all the 1996 items discussed above. Excluding the third quarter 1997 and 1996 items discussed above, income before investment transactions decreased $400,000 (less than 1%) due primarily to decreases in consumer lending and leasing operating results partially offset by increases in commercial lending, real estate and life insurance operating results and lower unallocated interest and other expenses. The pretax gain (loss) on investment transactions, included in consolidated revenues, comprises (amounts in millions): Nine months ended Three months ended September 30, September 30, 1997 1996 1997 1996 Net gain (loss) on sale of investments $(9.6) $34.0 $(10.1) $ 6.5 Adjustment for impairment in value (2.0) (5.5) (4.4) Adjustment to amortization of deferred policy acquisition costs for realized gains/losses on investment transactions 14.6 (0.5) (1.4) (3.7) ----- ----- ------ ----- $ 3.0 $28.0 $(11.5) $(1.6) ===== ===== ====== =====
Page 8 The amortization of deferred policy acquisition costs is adjusted for gains and losses realized on the sale of certain investments. The adjustment to the amortization of deferred policy acquisition costs is included in investment transactions as an offset to the related gains or losses. Investment transactions also reflect downward adjustments primarily for impairment in the value of certain nonperforming fixed maturity investments, mortgage loans, real estate investments and real estate acquired through foreclosure. REVENUES AND INCOME BY LINE OF BUSINESS
Three month ended Nine months ended September 30 September 30 Revenues Income (loss) Income (loss) 1997 1996 1997 1996 1997 1996 (Amounts in millions) Life insurance $3,161.8 $2,901.8 $227.1 $236.4 $ 84.3 $ 84.1 Gain (loss) on investment transactions (17.6) 21.7 (11.5) 14.1 (13.7) (2.4) -------- -------- ------ ------ ------ ------ Total life insurance 3,144.2 2,923.5 215.6 250.5 70.6 81.7 Commercial lending 361.4 319.7 63.1 54.5 21.2 21.8 Consumer lending 749.8 579.2 276.5 (52.6) 1.5 (65.7) Leasing 619.0 548.6 45.6 59.7 17.3 22.0 Amortization of goodwill (9.9) (9.8) (3.5) (3.3) -------- -------- ------ ------ ------ ------ Total finance 1,730.2 1,447.5 375.3 51.8 36.5 (25.2) Real estate services 283.9 238.9 54.0 36.5 17.3 15.2 Gain on investment transactions 20.5 20.2 13.1 13.2 6.0 1.4 Amortization of goodwill (0.1) (0.1) -------- -------- ------ ------ ------ ------ Total real estate services 304.4 259.1 67.0 49.6 23.3 16.6 Unallocated interest and other expenses 25.4 19.3 (39.0) (7.7) 19.6 40.8 Consolidation eliminations (50.7) (48.4) (9.1) -------- -------- ------ ------ ------ ------ Total revenues and net income $5,153.5 $4,601.0 $618.9 $335.1 $150.0 $113.9 ======== ======== ====== ====== ====== ======
Life Insurance Net income from our life insurance operations for the nine and three month periods ended September 30, 1997 decreased by $34.9 million (14%) and $11.1 million (14%) compared to the corresponding periods of 1996. Excluding investment transactions, income from insurance operations decreased $9.3 million (4%) during the nine month period of 1997 and increased $200,000 (less than 1%) in the third quarter as compared to the same periods of 1996. The results of the insurance operations for the first nine months of 1997 were affected by a $20.1 million after tax charge for a legal settlement recorded in the first quarter. The life insurance line experienced a decrease in income before investment transactions for both the nine and three month periods ended September 30, 1997 compared to the same periods of 1996. The decrease for the nine month period was primarily the result of the settlement provision described in the preceding paragraph in addition to unfavorable claims activity. The decrease in the third quarter resulted from a combination of increased operating expenses and unfavorable claims. The annuities line income before investment transactions increased for both the nine and three month periods ended September 30, 1997 compared to the same periods of 1996. These increases were primarily attributable to increases in fee income related to a higher variable annuity asset base combined with a reduction in operating costs in 1997. Operating expenses during 1996 were adversely affected by relocation costs associated with moving portions of the operations to Charlotte, North Carolina and Kansas City, Missouri. Page 9 The asset management group experienced slight increases in income before investment transactions for both the nine and three month periods ended September 30, 1997 compared to the corresponding periods of 1996. The primary factors contributing to these increases were favorable interest rate spreads and increased fee income resulting from overall growth in the asset management line business. The asset management group's results were negatively impacted by an earlier decision to reduce the scale of the structured settlements business. The reinsurance line experienced a slight increase in income before investment transactions for the nine month period and a decrease for the three month period ended September 30, 1997 compared to the 1996 periods. The increase for the nine month period reflected growth in policy revenue partially offset by increased claim costs. The decline in third quarter results was primarily due to increased claim costs. The Canadian line's income before investment transactions increased in both the first nine months and third quarter of 1997 over the comparable periods of 1996. The factors contributing to this improvement were improved persistency, favorable claims experience and higher management fees from the positive growth in the segregated funds business. In the corporate line, income before investment transactions increased slightly during the first nine months and third quarter of 1997 compared to the same periods of 1996. These increases were attributable primarily to increases in after tax investment income. For the nine month period ended September 30, 1997 after tax net losses on investment transactions were $11.5 million compared to after tax net gains of $14.1 million for the first nine months of 1996. After tax net losses on investment transactions increased by $11.3 million for the three month period ended September 30, 1997, compared to the same three month period of 1996. Included in these amounts are after tax net losses of $19.6 million and $12.8 million in gains realized on sales of investments during the nine months and three months periods ended September 30, 1997, compared to after tax net gains of $18 million and $2.8 million realized during the comparable periods of 1996. The $18 million after tax gain in 1996 included an after tax gain of $9.1 million resulting from a transaction with a special purpose subsidiary of Transamerica Corporation in which certain below investment grade bonds were exchanged for collateralized bond obligations with higher ratings issued by the subsidiary. This transaction had no effect on Transamerica's consolidated financial statements. Investment transactions for the nine month period ended September 30, 1997 reflect downward adjustments of $1.3 million after tax, primarily for impairment in the value of the mortgage loan portfolio compared to downward adjustments recorded in the first nine months of 1996 of $3.6 million after tax for the impairment in the value of certain below investment grade fixed maturity investments. Total life companies net investment income increased $69.6 million (5%) and $24.8 million (5%) for the nine month and three month periods of 1997 compared to the same periods of 1996. These increases were primarily due to a growing invested asset base. Total life companies policy revenue increased $190.3 million (14%) and $65.4 million (13%) for the nine month and three month periods of 1997 compared to the same periods of 1996. These increases were due primarily to growth in the modified coinsurance business in the reinsurance line. Total life companies insurance benefit costs and expenses increased $287 million (11%) and $91.8 million (10%) for the nine month and three month periods ended September 30, 1997 compared to the same periods in 1996. The increases were primarily due to: 1) increase in interest credited on interest-sensitive policies, 2) unfavorable claims activity and, 3) the provision for the legal settlement discussed above. Cash provided by life companies operations for the nine and three month periods ended September 30, 1997 decreased $285.1 million (43%) and $106.5 million (53%) from the same periods of 1996. These decreases were primarily due to the timing of the settlement of certain receivables and payables, including reinsurance receivables and payables. The life companies continue to maintain a sufficiently liquid investment portfolio to cover operating requirements. The remainder of our funds are invested in long term securities. Page 10 Commercial Lending Commercial lending net income for the first nine months and third quarter of 1997 was $55.1 million and $18.5 million compared to $46.3 million and $19.1 million for the comparable periods of 1996. Commercial lending income, before the amortization of goodwill, for the first nine months and third quarter of 1997 increased $8.6 million (16%) and decreased $600,000 (3%) from 1996's first nine months and third quarter. The first nine months increase resulted primarily from (1) the inclusion in the first quarter 1997 of a $3.2 million tax benefit from the satisfactory resolution of prior years' tax matters, (2) the inclusion in the first quarter of 1996 of the effect of after tax loss provisions of $2.5 million on a contested account and for settlement of a legal matter and (3) higher average net receivables outstanding in 1997. These factors more than offset the inclusion in the third quarter of 1996 of a $4.5 million benefit from the resolution of previously disputed issues relating to the 1995 sale of certain operating assets. The decrease in the third quarter resulted primarily from the effect of the $4.5 million benefit described above which more than offset the positive impact in the third quarter of 1997 of higher average net receivables outstanding. Revenues in the first nine months and third quarter of 1997 increased $41.7 million (13%) and $14.4 million (13%) over the corresponding 1996 periods. Higher average net receivables outstanding more than offset a decline in yield due to increased competition. Interest expense increased $20.5 million (19%) and $7.9 million (22%) in the first nine months and third quarter of 1997 principally due to a higher average debt level needed to support receivables growth. Operating expenses for the first nine months and third quarter of 1997 increased $7.3 million (6%) and $3.7 million (9%) primarily as a result of higher levels of business volume and outstanding receivables. The provision for losses on receivables for the first nine months and third quarter of 1997 increased $2.1 million (25%) and $2.4 million (891%) from the corresponding 1996 periods. The 1996 first quarter included a $2.9 million ($1.7 million after tax) reserve established on a major impaired account in the insurance premium finance portfolio. The third quarter increase in the loss provision was primarily attributable to the third quarter 1996 reversal of reserves no longer required due to the collection of previously reserved receivables in the liquidating portfolio. Credit losses, net of recoveries, on an annualized basis as a percentage of average commercial finance receivables outstanding, net of unearned finance charges, were 0.14% for the first nine months and 0.12% for the third quarter of 1997 compared to 0.07% and 0.03% for the comparable periods in 1996. Net commercial finance receivables outstanding were $3.9 billion at September 30, 1997 an increase of $213.8 million (6%) from December 31,1996. In 1997, the distribution finance operation purchased for cash a portfolio of floor plan finance receivables with a total net outstanding balance of approximately $115 million and securitized and sold approximately $227 million of a pool of floor plan finance receivables. The insurance premium finance operation reduced the level of pooled securitized receivables by $75 million ($400 million at September 30). Management has established an allowance for losses equal to 2.23% of net commercial finance receivables outstanding as of September 30, 1997 compared to 2.22% at December 31, 1996. Delinquent receivables are defined as instalments for inventory finance and asset based lending receivables more than 60 days past due and the outstanding loan balance for all other receivables over 60 days past due. Delinquent receivables were $19.4 million (0.48% of receivables outstanding) at September 30, 1997 compared to $17.3 million (0.46% of receivables outstanding) at December 31, 1996. 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 such time as past due amounts are collected. Nonearning receivables were $30.8 million (0.76% of receivables outstanding) at September 30, 1997 compared to $21.4 million (0.56% of receivables outstanding) at December 31, 1996. Consumer Lending Consumer finance net income for the first nine months and third quarter of 1997 was $276.1 million and $1.1 million. Operating income (excluding goodwill amortization) for the same periods was $276.5 million and $1.5 million. Third quarter earnings comprise the results of the continuing businesses and the liquidating operations. The branch based consumer lending operation was sold in the second quarter of 1997. Prior to completing the sale of the branch based operation, the consumer finance operation reported breakeven results for the 1997 periods. The sale resulted in an after tax gain of $275 million after taking into account writedowns of intangibles and other items. In the first nine months and third quarter of 1996, the consumer lending operation had net losses of $52.6 million and $65.8 million. Page 11 Revenues increased $170.6 million (29%) for the first nine months of 1997 over the comparable period of 1996. This increase was due primarily to a $469 million pre-tax gain on the sale of the branch-based lending business in the second quarter of 1997 offset in part by lower finance charges due to lower average receivables outstanding which resulted primarily from the sale of the branch based consumer lending operation and sale of various loan portfolios during the first six months of 1997. For the third quarter of 1997 revenues decreased $157.6 million (84%) from the third quarter of 1996. This decrease was due primarily to lower average receivables outstanding which resulted primarily from the sales of receivables during the first six months of 1997, offset partially by a $5 million pretax settlement of a claim on a prior year portfolio acquisition and by an $8.5 million pretax gain on the sale (with servicing rights retained) of certain continuing business loan portfolios in the third quarter of 1997. Interest expense for the first nine months and third quarter of 1997 decreased $116.9 million (52%) and $67.7 million (91%) from the comparable 1996 periods. Other operating expenses for the first nine months and third quarter of 1997 decreased $69.5 million (35%) and $55.7 million (75%) compared to the 1996 periods. The provision for losses on receivables for the first nine months and third quarter of 1997 decreased $203.7 million (84%) and $147.6 million (100%) compared to the same periods a year ago. All declines were due primarily to the sale on June 23, 1997 of the branch-based lending business. Transamerica has commenced building a new centralized real estate secured lending operation. As part of this plan, at September 30, 1997, there were $71 million of net consumer finance receivables relating to continuing operations. This was a reduction of $109.4 million from June 30, 1997 reflecting the sale with servicing rights retained of $169.5 million of receivables in the third quarter. Delinquent continuing operations finance receivables, which are defined as receivables contractually past due 60 days or more, were $6.7 million at September 30, 1997 (9.13% of finance receivables outstanding). This was an increase over the $2.9 million (1.57% of finance receivables outstanding) at June 30, 1997. The increase reflects a seasoning of a relatively new portfolio. For continuing business accounts, accrual of interest and other finance charges is suspended on accounts that become contractually past due more than 90 days. At September 30, 1997 such nonearning receivables amounted to $4.7 million. Payments received on accounts while in non accrual status are applied to principal and interest income according to the terms of the loan. Management has established an allowance for losses of $5.7 million equal to 8.05% of net consumer finance receivables outstanding at September 30, 1997 on continuing businesses. At June 30, 1997 the allowance was $5.2 million or 2.90% of net consumer finance receivables. The increase in the percent of net consumer finance receivables is due primarily to lower outstandings as a result of the sale of a portion of the continuing business portfolio during the quarter. Assets held for sale at September 30, 1997, totaled $171.5 million reflecting the net carrying value of $208.3 million of contractual finance receivables of which $139.9 million is 60 days or more past due, $30.4 million of foreclosures in process and $15.9 million of repossessed assets. Assets held for sale at June 30, 1997 were $189.5 million. Early in the fourth quarter, finance receivables and foreclosures in process of $158.7 million were sold. Gross proceeds were $117.8 million subject to closing adjustments. Management intends to continue its efforts to dispose of this portfolio. Factors such as economic conditions, competition, and the state of the real estate market all affect trends in receivable levels, credit losses, delinquencies, accounts in foreclosure and repossessed assets. Leasing Leasing net income for the first nine months and third quarter of 1997 was $44 million and $16.8 million compared to $58.1 million and $21.5 million for the first nine months and third quarter of 1996. Leasing income, before the amortization of goodwill, was $45.6 million and $17.3 million in the first nine months and third quarter of 1997 compared to $59.7 million and $22 million in the corresponding periods of 1996. Leasing income, before the amortization of goodwill, for the first nine months and third quarter of 1997 decreased $14.1 million (24%) and $4.7 million (21%) from the first nine months and third quarter of 1996. Lower earnings for both the first nine months and third quarter of 1997 resulted from lower per diem rates and lower standard container utilization caused by an industry over capacity of equipment, and from lower gains from sales of used standard containers. Partially offsetting these declines were improved earnings in the rail trailer, refrigerated, tank and domestic containers and European trailer lines, mainly associated with increased on-hire units. Page 12 Revenue for the first nine months and third quarter of 1997 increased $70.4 million (13%) and $25.6 million (14%) versus the first nine months and third quarter of 1996. The revenue increases were due to a larger on-hire fleet of standard, refrigerated and tank containers and chassis primarily associated with the October 1996 acquisition of Trans Ocean Ltd. which increased the fleet size approximately 25%. Revenue also increased due to a larger portfolio of finance leases and more on-hire European trailers. Partially offsetting the increase were lower revenues from decreased rental rates and utilization for standard containers and refrigerated containers primarily due to an over capacity of equipment. The rail trailer operation also reported lower revenue due to a smaller fleet size. Expenses for the first nine months and third quarter of 1997 increased $85 million (18%) and $30.6 million (20%) over the corresponding 1996 periods, primarily due to higher ownership and operating costs associated with larger fleets of standard and refrigerated containers, chassis and European trailers. The combined utilization rate for standard containers, refrigerated containers, domestic containers, tank containers and chassis averaged 78% and 79% for the first nine months and third quarter of 1997 compared to 81% for both the first nine months and third quarter of 1996. Rail trailer utilization was 83% and 84% for the first nine months and third quarter of 1997 compared to 80% and 81% for the first nine months and third quarter of 1996. European trailer utilization was 91% and 90% for the first nine months and third quarter of 1997 compared to 92% for both the first nine months and third quarter of 1996. Real Estate Services This segment includes Transamerica's real estate information businesses as well as certain real estate holdings and other investments. Net income for the first nine months of 1997 increased $17.4 million (35%) over the first nine months of 1996. Net income included net after tax gains from investment transactions of $13.1 million and $13.2 million in the first nine months of 1997 and 1996. Income before investment transactions in the first nine months of 1997 increased $17.5 million (48%) from the first nine months of 1996 primarily due to a $15.5 million after tax gain realized on the sale of a real estate property in the second quarter of 1997 and increased earnings at the real estate information companies. Income before investment transactions in the first nine months and third quarter of 1996 included gains totaling $5.3 million after tax from the sale of three real estate properties. Net income for the third quarter of 1997 increased $6.7 million (40%) over the third quarter of 1996. Net income included net after tax gains from investment transactions of $6 million and $1.4 million in the third quarters of 1997 and 1996. Income before investment transactions in the third quarter of 1997 increased $2.1 million (14%) from the third quarter of 1996, which included the $5.3 million of gains discussed above, primarily due to increased earnings at the real estate information companies. Revenues for the first nine months of 1997 increased $45.3 million (17%) over the first nine months of 1996 as a result of increased investment income and the gain noted above. Revenues for the third quarter of 1997 increased $12.3 million (13%) over the third quarter of 1996 primarily as a result of increased business at the real estate information companies. Unallocated Interest and Expenses Unallocated interest and other expenses, after related income taxes, for the first nine months and third quarter of 1997 included a $44.1 million benefit from the satisfactory resolution of prior year tax issues. In the first nine months and third quarter of 1996 unallocated investment transactions, interest and expenses, after related income taxes, included 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 associated with previously discontinued operations. Excluding these items, unallocated interest and expenses increased $7 million. The increase was primarily due to costs associated with the Capital Trust Pass-Through Securities issued in November, 1996 and the vesting in the first quarter of 1997 of certain performance stock options issued under the 1995 Performance Stock Option Plan. Excluding the items discussed above, unallocated interest and other expenses, after related income taxes, for the third quarter of 1997 decreased $3.1 million over the same quarter of 1996. The decrease was primarily due to decreased interest expense associated with lower outstanding debt. Corporate Liquidity and Capital Requirements Transamerica Corporation receives funds from its subsidiaries in the form of dividends, income taxes and interest on loans. The Corporation uses these funds to pay dividends to its stockholders, purchase shares of its common stock, reinvest in the operations of its subsidiaries and pay corporate interest, expenses and taxes. Reinvested funds are allocated among subsidiaries on the basis of expected returns, creation of shareholder value and capital needs. Reinvestment may be accomplished by allowing a subsidiary to retain all or a portion of its earnings, or by making capital contributions or loans. Page 13 The Corporation also borrows funds to finance acquisitions or to lend to certain of its subsidiaries to finance their working capital needs. Subsidiaries are required to maintain prudent financial ratios consistent with other companies in their respective industries and retain the capacity through committed credit lines or liquid assets to repay working capital loans from the Corporation. On May 21, 1997, Transamerica announced that its board of directors had authorized additional purchases of up to 6 million shares of the its common stock. On June 27, 1997 Transamerica announced the purchase of 3 million shares of its common stock under this authorization. The shares were purchased from two investment banks for approximately $273 million at an average price of $91.11 per share, subject to market price adjustment provisions. To complete the transaction, the investment banks borrowed Transamerica common shares and will be purchasing replacement shares in the open market. During the first nine months of 1997 Transamerica purchased 4,082,500 shares for $378.3 million (including the 3 million share purchase noted above). Investment Portfolio Transamerica, principally through its life insurance subsidiaries, maintains an investment portfolio aggregating $31.4 billion at September 30, 1997, of which $28.3 billion was invested in fixed maturities. At September 30, 1997, 94.9% of the fixed maturities was rated as "investment grade" with an additional 3.3% in the BB category or its equivalent. The amortized cost of fixed maturities was $26.6 billion resulting in a net unrealized gain, before the effect of income taxes and adjustments to deferred acquisition costs and policy liabilities, of $1.7 billion at September 30, 1997. Fixed maturity investments are generally held for long-term investment and used primarily to support life insurance policy liabilities. Adjustment for impairment in value has been made to reduce the amortized cost of certain fixed maturity investments by $56 million at September 30, 1997 and $62.9 million at December 31, 1996. In addition to the investments in fixed maturities, $757.5 million (2% of the investment portfolio), net of allowance for losses of $43.5 million, was invested in mortgage loans and real estate including $687.5 million in commercial mortgage loans, $76.9 million in real estate investments, $4.4 million in foreclosed real estate and $32.2 million in residential mortgage loans. Problem loans, defined as restructured loans yielding less than 8% and delinquent loans, totaled $4.7 million at September 30, 1997 and $8.1 million at December 31, 1996. Allowances for possible losses of $43.5 million at September 30, 1997 and $42.8 million at December 31, 1996 have been established to cover possible losses from mortgage loans and real estate investments. Derivatives The operations of Transamerica are subject to risk of interest rate fluctuations to the extent that there is a difference between the cash flows from Transamerica's interest-earning assets and the cash flows related to its liabilities that mature or are repriced in specified periods. In the normal course of its operations, Transamerica hedges some of its interest rate risk with derivative financial instruments. These derivatives comprise primarily interest rate swap agreements, interest rate floor agreements, and options to enter into interest rate swap agreements (swaptions). Derivative financial instruments with a notional amount of $9.4 billion at September 30, 1997 and $9.9 billion at December 31, 1996 were outstanding and designated as hedges of Transamerica's investment portfolio. In addition, derivative financial instruments with a notional amount of $4.2 billion at September 30, 1997 and $3.5 billion at December 31, 1996 were outstanding and designated as hedges of Transamerica's liabilities. While Transamerica is exposed to credit risk in the event of nonperformance by the other party, nonperformance is not anticipated due to the credit rating of the counterparties. At September 30, 1997, the derivative financial instruments discussed above were issued by financial institutions rated A or better by one or more of the major credit rating agencies. The fair value of Transamerica's derivative financial instruments at September 30, 1997 and December 31, 1996 was a net benefit of $82.6 million and $73.7 million comprising agreements with aggregate gross benefits of $132.4 million and $91.2 million and agreements with aggregate gross obligations of $49.8 million and $17.5 million. When an asset or liability which is hedged by a derivative contract is sold or otherwise disposed of, the derivative contract is either reassigned to hedge another asset or liability or closed out, and any gain or loss recognized. Page 14 Pro forma Earnings Per Share In February 1997 the Financial Accounting Standards Board issued Statement No. 128 - Earnings Per Share. This statement is effective for years ending after December 15, 1997 and supersedes the earnings per share calculation methodology and disclosure requirements of APB Opinion No. 15. The earnings per share amounts below reflect on a pro forma basis Transamerica's earnings per share in accordance with the new standard. Nine months ended Three months ended September 30, September 30, 1997 1996 1997 1996 Earnings per share - basic: Income before gain on investment transactions $9.40 $4.55 $2.50 $1.68 Gain (loss) on investment transactions 0.03 0.27 (0.12) (0.01) ----- ----- ----- ----- Net income $9.43 $4.82 $2.38 $1.67 ===== ===== ===== ===== Earnings per share - diluted: Income before gain on investment transactions $9.12 $4.44 $2.42 $1.65 Gain (loss) on investment transactions 0.02 0.27 (0.12) (0.01) ---- ----- ----- ----- Net income $9.14 $4.71 $2.30 $1.64 ===== ===== ===== =====
Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 10.1 Employment Agreement by and between Transamerica Corporation and Frank C. Herringer dated as of November 4, 1997. 11 Statement Re: Computation of Per Share Earnings. 12 Computation of Ratio of Earnings to Fixed Charges. 27 Financial Data Schedule. (b) Reports on Form 8-K. On July 8th, Transamerica reported that it had sold substantially all of its real estate secured lending operations to a subsidiary of Household International. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRANSAMERICA CORPORATION (Registrant) Burton E. Broome Vice President and Controller (Chief Accounting Officer) Date: November 13, 1997 EX-10.1 2 EMPLOYMENT AGREEMENT EXHIBIT 10.1 Page 1 EMPLOYMENT AGREEMENT AGREEMENT by and between Transamerica Corporation, a Delaware corporation (the "Company") and Frank C. Herringer (the "Executive"), dated as of the 4th day of November, 1997. 1. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the date hereof and ending on December 31, 2001 (the "Employment Period"). 2. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, the Executive shall be Chief Executive Officer of the Company and Chairman of the Company's Board of Directors and shall have such duties, responsibilities and authority as shall be consistent therewith. The Executive's services shall be performed in San Francisco, California, subject to reasonable travel requirements. (ii) During the Employment Period, and excluding any periods of vacation and sick leave or other approved leaves of absence in accordance with established policies of the Company to which the Executive is entitled, the Executive agrees to devote full attention and time during normal business hours to the business and affairs of the Company and to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary") of no less than $975,000. The Annual Base Salary shall be paid in equal bi-monthly installments. During the Employment Period, the Annual Base Salary shall be reviewed at least every 12 months. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall have, for each fiscal year ending during the Employment Period, a target annual bonus pursuant to the Company's 1994 Value Added Incentive Plan or any successor thereto of no less than 100% of the Executive's Annual Base Salary for such year (the "Target Bonus"). Each such Annual Bonus shall be paid in cash or restricted stock as determined pursuant to the Company's 1994 Value Added Incentive Plan and shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of the cash portion of such Annual Bonus. Any deferral shall be subject to the terms of the Transamerica Corporation Deferred Compensation Plan. (iii) Cash Long-Term Incentives. The Executive shall participate in the Company's 1998 Cash Long-Term Incentive Plan on the same basis as other senior executives of the Company and shall have a target award thereunder of $3.2 million (the "Target LTIP") for the period 1998-1999 based on the achievement of cumulative value added targets for the period 7/1/97 through 12/31/99 (the "Performance Period"). Upon a "Change in Control" of the Company as defined in the Agreement between the Company and the Executive dated July 11, 1997 (the "Existing Agreement"), the Executive shall receive a lump sum payment equal to the greater of (x) $1,067,000, and (y) $3.2 million multiplied by a fraction, the numerator of which is the number of days from July 1, 1997 until the date of the Change in Control and the denominator of which is the number of days in the Performance Period. Upon the Executive's death or Disability, the Executive or his estate, as the case may be, shall receive a lump sum payment equal to $3.2 million multiplied by a fraction, the numerator of which is the number of days from July 1, 1997 until the Date of Termination and the denominator of which is the number of days in the Performance Period. Page 2 (iv) Stock Options. On the later of the date of execution of this Agreement or January 2, 1998, the Executive shall be granted, subject to stockholder approval, a nonqualified stock option to acquire 645,000 shares of the Company's common stock, pursuant to the Company's 1995 Performance Stock Option Plan (the "1995 Plan") with an exercise price of $150 per share (the "$150 Option"). The $150 Option shall vest and become immediately exercisable when (i) the Company's common stock closes at or above $150 as quoted in the New York Stock Exchange Composite Transactions Index published in The Wall Street Journal for 10 out of any consecutive 30 trading days occurring not later than five years of the date of grant, and (ii) the Company's total shareholder return (as determined by the Company's Compensation Committee) during any Measurement Period (as defined below) is at or above the median level of shareholder return for the S&P 500 Financial Index, excluding banks and savings and loan institutions (the criteria in (i) and (ii) above being the "Performance Criteria"). Upon vesting, the $150 Option shall continue to be exercisable until the tenth anniversary of the date of grant. "Measurement Period" is initially a period from the date of grant of the $150 Option, or if longer, the date that is one year prior to the date on which the condition in (i) above is satisfied. If the condition in (ii) is not met initially, the condition shall be tested periodically until the tenth anniversary of the date of grant of the $150 Option, as described in the Executive's award agreement. Upon the Executive's death or Disability, the $150 Option shall become vested and exercisable with respect to the following number of shares: 645,000 multiplied by a fraction (the "Proration Fraction"), the numerator of which is the number of days from the date of grant until the Date of Termination and the denominator of which is the number of days from the date of grant until the fifth anniversary thereof, but only when and if the Performance Criteria are met. The Executive shall be granted that number of TLSARs, within the meaning of the 1995 Plan, with respect to the $150 Option in the same manner as for other participants under the 1995 Plan. Notwithstanding the foregoing, if a TLSAR would make a Change in Control transaction ineligible for pooling of interests accounting under APB No. 16 that but for the TLSAR would otherwise be eligible for such accounting treatment, the Compensation Committee of the Company shall have the ability to substitute the cash payable hereunder with stock with a fair market value equal to the cash that would otherwise be payable hereunder. (v) Phantom Restricted Shares. On the later of January 2, 1998 or the first day of the Employment Period, the Executive shall be credited on the books of the Company with 105,000 Phantom Restricted Shares. In addition, on each date on which dividends or other distributions are paid on the Company's common stock, the Executive shall be credited with an additional number of Phantom Restricted Shares equal to: (A) the fair market value of the cash or other property which would have been paid on such date as a dividend or other distribution if the Executive's Phantom Restricted Shares (immediately prior to such dividend or distribution) were actual shares of the Company's common stock, divided by (B) the Fair Market Value on such date of a share of the Company's common stock. Except as otherwise provided in this Agreement, the Executive shall have a right to payment of (that is, the Executive shall become vested in) the Phantom Restricted Shares credited to him only on the last day of the Employment Period, and only if his employment has not terminated prior to such date. If prior to the last day of the Employment Period, the Executive's employment is terminated due to Disability or death, the Executive shall become vested in a pro rata portion of the Phantom Restricted Shares, based on the elapsed portion of the Employment Period. If prior to the last day of the Employment Period, the Executive's employment is voluntarily terminated by him for Good Reason or involuntarily terminated by the Company other than for Cause, the Executive shall become vested in a pro rata portion of the Phantom Restricted Shares, based on the elapsed portion of the Employment Period, provided that for this purpose only, the Executive shall be deemed to have terminated employment 12 months after his actual termination date. If a Change in Control occurs prior to the last day of the Employment Period and while the Executive still is employed with the Company, the Executive shall become vested in a pro rata portion of the Phantom Restricted Shares, based on the elapsed portion of the Employment Period. If within 24 months after such Change in Control, but before the last day of the Employment Period, the Executive's employment is voluntarily terminated by him for Good Reason or involuntarily terminated by the Company other than for Cause, the Executive shall become vested in the remaining unvested Phantom Restricted Shares (notwithstanding the third sentence of this paragraph). In all cases, any Phantom Restricted Shares which are credited as a dividend or other distribution on vested Phantom Restricted Shares also shall be immediately vested. Page 3 Pursuant to such procedures as the Committee may specify, the Executive shall elect the form for payment of any vested Phantom Restricted Shares and may designate one or more Beneficiaries to receive payment of any vested, unpaid Shares which remain at the time of the Executive's death. Payment of the Executive's vested Phantom Restricted Shares (if any) shall commence as soon as administratively practicable after the Participant's termination of employment. If, pursuant to the procedures specified by the Committee, the Executive elected to receive ten annual installments, the amount of each installment shall equal the value of the Phantom Restricted Shares credited to him immediately prior to the payment, divided by the number of installments remaining to be made. Each subsequent annual installment shall be paid to the Executive as near as administratively practicable to each anniversary of the first installment payment. For purposes of this Agreement, "Phantom Restricted Share" means an unfunded promise by the Company to make a cash payment to the Executive. Each Phantom Restricted Share shall make the Executive only a general, unsecured creditor of the Company. On any date, the value of each Phantom Restricted Share shall equal the Fair Market Value of a share of the Company's common stock on such date. For purposes of this Section 2(b)(v), "Fair Market Value" means the last quoted per share selling price for the Company's common stock on the relevant date, as quoted in the New York Stock Exchange Composite Transactions Index published in The Wall Street Journal, or if there were no sales on such date, the last quoted selling price on the nearest day after the relevant date. All provisions of this Agreement relating to the Phantom Restricted Shares shall be administered by the Management Development and Compensation Committee of the Company's Board of Directors, or any successor thereto (the "Committee"). The Committee shall have all powers and discretion necessary or appropriate to administer the Phantom Restricted Shares, including, but not by way of limitation, the discretionary powers to interpret and determine the meaning of any provision of this Section 2(b)(v). The Phantom Restricted Shares are intended to be exempt from liability under section 16(b) of the Securities Exchange Act of 1934, as amended, pursuant to Rule 16b-3 promulgated thereunder. To the extent that any provision of this Section 2(b)(v) or action by the Committee fails to comply with Rule 16b-3, it shall be deemed null and void to the extent deemed advisable by the Committee, provided it does not adversely affect the rights of the Executive hereunder. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, share combination, or other change in the corporate structure of the Company affecting the Company's common stock (each, an "Event"), the Committee shall adjust the number and/or value of the Phantom Restricted Shares in such manner as the Committee (in its sole discretion) shall determine to be appropriate to prevent the dilution or diminution of such Phantom Restricted Shares. Any such adjustment shall be made by the Committee as constituted immediately prior to the applicable Event. (vi) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be eligible to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies. (vii) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, life insurance, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies. (viii) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by the Executive. Page 4 (ix) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services and an automobile of his choice and payment of related expenses. (x) Vacation. During the Employment Period, the Executive shall be entitled to at least four weeks of paid vacation in each calendar year. 3. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 10(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct, which in either case is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of a majority of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive or requiring the Executive to be based at a location other than that set forth in Section 2(a); Page 5 (ii) any failure by the Company to comply with any of the provisions of Section 2(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (iv) any failure by the Company to comply with and satisfy Section 9(c) of this Agreement. For purposes of this Section 3(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 4. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, Death or Disability or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive the following amounts: A. a lump sum in cash equal to the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Target Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount (the "Severance Payment") equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Target Bonus, which amount shall be paid in 36 equal monthly installments, unless the Executive has previously elected to receive a lump sum payment in which case the Severance Payment shall be paid in a lump sum within 10 days of the Date of Termination and shall be discounted at the applicable federal rate as defined in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended; and (ii) all stock options, restricted stock and other stock-based compensation shall become immediately exercisable or vested, as the case may be, and will continue to be exercisable over the remaining term of the respective option; Page 6 (iii) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 2(b)(vii) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period, thereby accumulating 36 additional months of age and 36 additional months of service credit; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is entitled to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of (i) Accrued Obligations, (ii) the timely payment or provision of Other Benefits and (iii) such other payments as are specifically provided for hereunder. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of (i) Accrued Obligations, (ii) the timely payment or provision of Other Benefits and (iii) such other payments as are specifically provided for hereunder. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 5. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 6. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses Page 7 which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"); provided that the Company shall have no such obligation if it is determined by a court that the Company was not in breach of the Agreement and that the Executive's claims were not made in good faith. 7. Coordination with Existing Agreement. Upon a Change in Control, the terms of the Existing Agreement shall supersede this Agreement provided that the provisions of Section 2(b)(iii), (iv), (v), Section 4(a)(ii), Section 4(b)(iii) and Section 4(c)(iii) shall continue in full force and effect. 8. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 9. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 10. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: 90 Sea View Avenue Piedmont, California 94611 If to the Company: Transamerica Pyramid 600 Montgomery Street San Francisco, California 94111 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. Page 8 (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 3(c)(i)-(iv) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. FRANK C. HERRINGER /s/ Frank C. Herringer TRANSAMERICA CORPORATION By /s/ Peter V. Ueberroth PETER V. UEBERROTH CHAIRMAN, MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE EX-11 3 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS TRANSAMERICA CORPORATION Nine months ended September 30, 1997 1996 (Dollar amounts in thousands, except for share data) Primary Average shares outstanding 64,961 66,802 Net effect of dilutive stock options-- based on the treasury stock method using average market price 2,030 1,638* ------ ------ TOTAL 66,991 68,440 ====== ====== Net income $618,916 $335,127 Preferred dividends (2,550) (12,814) Preferred stock redemption cost (3,827) -------- -------- Net income to common $612,539 $322,313 ======== ======== Per share amount $9.14 $4.82 ===== ===== Fully Diluted Average shares outstanding 64,961 66,802 Net effect of dilutive stock options-- based on the treasury stock method using the market price at quarter end if higher than the average market price for three months 2,192 1,662 ------ ------ TOTAL 67,153 68,464 ====== ====== Net income $618,916 $335,127 Preferred dividends (2,550) (12,814) Preferred stock redemption cost (3,827) -------- -------- Net income to common $612,539 $322,313 ======== ======== Per share amount $9.12 $4.71 ===== ===== *Not included in per share calculation because effect is less than 3%. EX-12 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 TRANSAMERICA CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Nine months ended September 30, 1997 1996 (Dollar amounts in thousands) Fixed charges: Interest and debt expense $ 418,292 $ 514,375 One-third of rental expense 29,151 18,144 Dividends declared on preferred securities issued by affiliates 29,975 12,843 ---------- ---------- Total 477,418 $ 545,362 ========== ========== Earnings: Net income $ 618,916 $ 335,127 Provision for income taxes 290,054 66,581 Fixed charges 477,418 545,362 ---------- ---------- Total $1,386,388 $ 947,070 ========== ========== Ratio of earnings to fixed charges 2.90 1.74 ==== ==== EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 96 1,666 2,210 0 0 0 3,524 1,425 49,969 0 0 0 0 63 4,516 49,969 0 5,153 0 3,177 0 48 418 909 290 619 0 0 0 619 9.14 9.12
-----END PRIVACY-ENHANCED MESSAGE-----