Item 1. BUSINESS.
General
Beneficial Corporation (Company) was organized under the laws of the State of Delaware on May 9, 1929, through the consolidation of three companies which had been operated under the same management. The Company traces its origin to 1914 when its first consumer loan office was opened. The Company is a holding company, subsidiaries of which are engaged principally in the consumer finance and credit-related insurance businesses. Operations conducted by the subsidiaries consist principally of a 1,186-office consumer finance network located in the United States, Canada, Germany, and the United Kingdom; Personal Mortgage Corporation, a direct response mortgage lending unit, which originates home equity loans chiefly in the Northeast, Middle Atlantic and West Coast regions; Beneficial National Bank USA, a specialized private- label credit card bank located in Delaware; Beneficial Credit Services, which is engaged in sales finance activities; Beneficial National Bank, a full service commercial bank located in Delaware, which is also engaged in making income tax refund anticipation loans; The Central National Life Insurance Company of Omaha and its subsidiary, First Central National Life Insurance Company of New York, which underwrite life and disability consumer credit insurance; Wesco Insurance Company, which provides credit property insurance; BFC Insurance Limited which is located in Ireland and underwrites life, accident and health insurance; and Harbour Island Inc. and subsidiaries, which are engaged in real estate development in Florida. The Company and its subsidiaries employed approximately 9,700 people at December 31, 1996.
For information concerning various factors that affected operations during 1996, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" under Item 7. For pertinent geographical data, see Note 21 to the financial statements.
Operations
Consumer Finance Operations
Loan Office Network
Consumer loan subsidiaries operate through a loan office network in the United States, Canada, Germany and the United Kingdom. In addition to making consumer loans, the subsidiaries purchase loans and sales finance contracts and sell certain insurance products. The number of loan offices has grown noticeably in the last two years. In the United States, this trend reflects the Company's re-entering smaller markets and inner-city urban locations, with new, scaled-down offices, staffed by only two or three people. Expansion in the United Kingdom reflects plans to increase market share and capitalize on Beneficial Bank PLC's strong competitive position. The number of offices in the network for the past five years is shown in the following table:
Number of Offices at December 31
In addition, consumer finance operations include two subsidiaries engaged in private-label and bank credit card and sales finance activities and a commercial bank and its eight full-service branches located in Delaware.
Finance Receivables
The following table shows the composition of the finance receivables portfolio at December 31 (in millions):
Periodically, subsidiaries of the Company sell home equity loans to trusts created as real estate mortgage investment conduits and retain servicing. The Company also retains an economic interest in the residual cash flows of such trusts. The subsidiaries sold $1,919 million of home equity loans in 1996, $1,104 million in 1995, $757 million in 1994, $620 million in 1991, as well as $248 million in 1989.
The table below discloses at December 31 international finance receivables by country as translated into U.S. dollars (in millions):
International Operations
The Canadian operation consists of 109 offices located across Canada, although the provinces of Ontario, Quebec and British Columbia represented 63% of total Canadian receivables. At year-end 1996, approximately 42% of Canadian receivables were real estate secured, 29% were personal unsecured, 20% were private-label credit cards and 9% were sales finance contracts. The 5% receivable growth in Canadian dollars in 1996 was primarily in the private-label credit card and personal unsecured portfolios. The Canadian operations reported C$20.2 million (US$14.8 million) in net income for 1996, compared with C$18.5 million (US$13.5 million) in 1995 and C$16.3 million (US$11.9 million) in 1994. The increase in 1996 earnings was the result of a higher gross margin, partially offset by increased operating expenses. Canadian interest rates across the yield curve plunged during 1996. At year-end, the prime rate was 4.75%, a 40-year low, and five-year mortgage rates were at a 30-year low of 6.95%. Net chargeoffs increased to C$26.2 million (US $19.2 million) in 1996 from C$21.9 million (US$16.0 million) in 1995, and increased as a percentage of average receivables outstanding to 2.84% from 2.50% in 1995. Contractual delinquency decreased moderately to 2.49% at year- end 1996 from 2.73% a year earlier.
The United Kingdom operation offers consumer loans, sales finance contracts, credit card and deposit services through 90 offices in the United Kingdom. The United Kingdom operation is a leading issuer of Visa cards to United Kingdom affinity groups, entrance into the co-branded credit card market was established with a large account launched in 1996. United Kingdom receivables at the end of 1996 were composed of 25% real estate secured, 40% private-label and Visa credit cards, 25% personal unsecured and 10% sales finance contracts. Receivable gains were 22% in pounds during 1996. The strong growth of the past three years (compound growth rate of 20%) reflects both increased credit card outstandings and the expansion in the branch network. Profits were pounds 7.1 million (US$11.0 million) in 1996, down from pounds 10.4 million (US$16.4 million) in 1995 and pounds 9.1 million (US$13.9 million) in 1994. The reduction in net earnings was caused by increased net chargeoffs combined with the increase in reserves due to higher delinquency. The decline in earnings also reflected lower insurance commissions, although it should be noted that all United Kingdom credit insurance is now insured by Beneficial's newly established Irish insurance companies, which recorded 1996 aftertax profits of pounds 3.4 million (US$5.3 million). Net chargeoffs increased to pounds 13.9 million (US$22.1 million) in 1996 from pounds 10.2 million (US$15.9 million) in 1995; likewise, as a percentage of average receivables outstanding, net chargeoffs increased to 1.97% from 1.70% in 1995. Contractual delinquency increased to 3.75% at year-end 1996 from 3.07% at the end of 1995.
The German consumer banking subsidiary's name was changed from BFK Bank AG to Beneficial Bank AG (BBAG or Bank) on October 1, 1996. The Bank offers consumer loans and accepts deposits through 15 offices in Germany. Earnings were at a virtual breakeven for 1996 following losses of DM37 million (US$26 million) in 1995 and DM52 million (US$32 million) in 1994, as the Bank made progress toward acceptable returns in 1996. The losses in the preceding two years were the result of charges relating to the Fundus Grundstuecks GmbH (Fundus) portfolios. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," under Item 7 and Note 3 to the financial statements for further details. Pursuit of new commercial loans came to a halt and the previously acquired commercial portfolio is being run off. The Bank's focus on consumer lending has been sharpened with a concentration on conversion of sales finance accounts and other direct consumer lending, rather than the previous reliance on broker-generated loans. Also a bank credit card business is being developed with five affinity card programs active at year- end. Further, in October 1996, a settlement agreement relating to most of the Fundus loans was concluded.
Geographic Distribution
Finance receivables in each of the ten jurisdictions (U.S. and international) with the highest percentages of total owned receivables were as follows:
Portfolio Distribution
The following table shows the distribution by size of real estate secured and personal unsecured loans made during the respective years:
Principal Amount of Loans Made in Each Size Class as a Percent of Total Principal Amount Years Ended December 31
Credit Quality Measures
Certain data regarding loss experience of finance receivables on an owned basis are as follows:
(in millions, except percentages)
Note: 1995 and 1994 do not include $15.0 million and $38.0 million, respectively, in chargeoffs related to German liquidating loan portfolio, which would increase net chargeoffs to average gross receivables to 1.76% in 1995 and 1.61% in 1994.
The allowance for credit losses at year-end 1996 covered net chargeoffs 1.57 times, compared with 1.94 times a year earlier. In addition to the allowance for credit losses, the balance in dealer reserves at December 31, 1996 and 1995, was $8.6 million and $10.0 million, respectively. The following tables summarize delinquency and chargeoff percentages by product. Amounts are expressed as a percentage of owned receivables except where noted.
Delinquency By Major Categories
*The percentage is presented on a managed receivable basis.
Chargeoffs By Major Categories
Note: 1995 and 1994 exclude the effect of the $15.0 million and $38.0 million German liquidating loan portfolio charges, respectively. *Includes losses on disposition of foreclosed property, including holding costs. The percentage is presented on a managed receivables basis.
Chargeoffs and delinquencies are generally higher during periods of adverse economic conditions, such as rising unemployment, falling housing values, and increased inflationary pressures, which affect the ability of the borrower to repay. It is the policy of the subsidiaries generally not to renew delinquent accounts. Receivables considered to be uncollectible or to require disproportionate collection costs are charged to the allowance for credit losses, but collection efforts are generally continued. For further discussion on chargeoffs and delinquency, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" under Item 7.
Lending Policies
Loans on both a secured and unsecured basis are made after a thorough credit investigation and a favorable evaluation as to the borrower's willingness and ability to repay. Real estate secured loans are either closed-end or revolving, and rates are either variable or fixed. Of the portfolio of loans owned at the end of 1996, approximately 57% of real estate secured loans were fixed-rate and 43% were variable-rate. Real estate secured loans are subject to carefully monitored underwriting of both the borrower's ability to repay and the independent professionally appraised market value of the property. The loans are well-documented consumer loans based on the creditworthiness of the borrower, with the collateral of the real estate providing additional security. U.S. consumer finance subsidiaries will generally lend to a maximum of only 75% (including the existing first mortgage) of the appraised value of the real estate as determined by independent appraisers on second mortgage loans. In the case of a first mortgage, the subsidiaries will generally lend to only 80%. Recently, certain of the Company's consumer finance offices began a controlled test of somewhat higher loan-to-value ratios in centralized operations where the process can be carefully evaluated. In these centralized operations, the consumer finance subsidiaries are testing loan-to-value ratios as high as 90% on first mortgages, and 85% on second mortgages. In addition, a rigorous discipline of credit approval is enforced regarding borrower debt-to-income ratios and overall consumer credit quality. Most real estate loans must be approved by regional management, as well as by the originating loan office manager. Loans above $250,000 generally require additional approval by senior operating management at headquarters. Independent appraisers are evaluated by regional management, as well as by the loan office manager.
Closed-end loans and revolving loans made under consumer finance acts generally are not secured by real estate. Closed- end loans generally do not exceed a 60-month term, and the interest rate may be limited according to the size of the loan. Revolving loans are written with fixed rates. Generally, loans under the consumer finance acts are made at the maximum rates allowable. Experience indicates that a borrower who qualifies for additional credit often obtains a new loan in an amount larger than his existing balance. A portion of the proceeds of the new loan is applied to extinguish the existing balance.
Sales Finance and Credit Card Activities
Sales finance activities conducted by subsidiaries featuring the name "Beneficial Credit Services" represent an important source of new loan customers for the consumer finance subsidiaries. In 1996, more than 50% of new loan customers for other consumer finance products originated as sales finance customers. Beneficial Credit Services programs are marketed through the loan office network to smaller local and regional merchants.
Beneficial National Bank USA (BNB USA) is a specialized, private-label credit card bank located in Wilmington, Delaware. BNB USA offers customized private-label and co-branded revolving charge programs to large regional and national retailers, offering their retail customers open lines of credit. Additionally, BNB USA provides marketing and cardholder services designed to meet each retailer's needs. Targeted retailers include electronics, furniture and apparel retailers, as well as home centers, warehouse clubs and general merchandisers. Outstanding receivables totaled $3,870 million at year-end 1996, up from $2,545 million at the end of 1995 and $1,613 million at the end of 1994. A significant portion of the growth was provided by three retailers: Best Buy Company, Inc. (60% of the total gain), and two new national programs, PriceCostco Inc. and Kmart Corporation. These three merchants also accounted for 64% of the portfolio at December 31, 1996. Additionally, approximately 56% of the portfolio was special financing plans, which defer customer interest for up to 13 months.
BNB USA profitability was dampened by $65 million of up- front loan loss provisioning on the strong receivables growth experienced in 1996 and $10 million of start-up costs relating to programs for Kmart and PriceCostco. Also, interest margin declined from 1995, largely the result of a higher proportion of receivables outstanding during the year from the above- mentioned special financing plans and a higher level of convenience usage, (i.e., customers paying off balances within the grace period before charges accrue). Accordingly, BNB USA aftertax earnings were at virtual breakeven in 1996 versus $21.1 million in 1995 and $5.9 million in 1994. Due to the higher level of receivables growth and the anticipated maturing of the portfolio, net chargeoffs increased to $118.8 million in 1996 from $49.9 million in 1995. As a percentage of average receivables outstanding, net chargeoffs rose to 4.00% in 1996 from 2.64% in 1995. Similarly, contractual delinquency increased to 3.46% at year-end 1996 from 2.98% at December 31, 1995.
Personal Mortgage Corporation
Personal Mortgage Corporation (PMC), which began operations in July 1991, provides consumers with fast action on home equity loan applications, all by telephone, with an initial answer usually within 24 hours. The menu of real estate products offered by PMC is wider than typically offered in a loan office and therefore can meet the needs of a broader demographic base. In July 1996, PMC began operations on the West Coast, with initial efforts centered on Seattle and Spokane, Washington, and Sacramento and Fresno, California, markets. Including these expansion efforts, PMC's operations now include 12 states in the Northeast and Mid Atlantic regions, as well as Florida and the West Coast. In 1996, PMC funded 4,056 loans for $215 million, a 12% improvement over 1995 in number of loans and a 26% improvement in dollars funded. Approximately 83%, or $179 million, of loans funded were sold and transferred to other Beneficial consumer loan subsidiaries in 1996. The remainder were sold to other originators who provide products to service niches outside of Beneficial's traditional customer base. PMC made an aftertax profit contribution of $1.5 million for 1996, down from $1.7 million in 1995.
Commercial Banking
Beneficial National Bank (BNB or Bank), based in Wilmington, Delaware, is the Company's commercial banking subsidiary. Through its eight full-service branches in Delaware, BNB provides a full range of commercial and consumer banking services to small- and medium-sized businesses and to consumers in Delaware and surrounding markets. Also, BNB, in conjunction with affiliated companies, originates and services a portion of the tax refund anticipation loans (RALs) issued through H&R Block and certain of its franchisees. In December 1996, BNB introduced a nationwide on-line loan program that allows consumers to apply for unsecured loans through a personal computer and receive a decision in two minutes or less. In addition, the Bank provides significant corporate cash management and treasury services to the Company and its operating subsidiaries. All disbursements through the consumer finance subsidiaries' loan office network, as well as all checks written by customers on revolving credit lines originated through the loan office network, are drawn on BNB.
At December 31, 1996, total loans outstanding were $176 million, a decrease of 22% and 21% from 1995 and 1994, respectively. The Bank's loan portfolio is composed of 48% commercial and industrial (C&I) loans and 52% consumer loans and credit card receivables. A large portion of the C&I loans are commercial mortgage loans or have real estate collateral as additional security for cash flow-oriented business loans. Total deposits at December 31, 1996 were $319 million, down slightly from $321 million at December 31, 1995 and up moderately from $289 million at December 31, 1994.
The Bank's earnings include processing fees for originating and servicing the RAL program. These earnings have also been included with the earnings reported in the tax refund anticipation loan program section that follows, so that all earnings related to RAL can be set forth separately.
BNB's net income excluding RAL processing fees was $6.8 million in 1996, down from $7.0 million in 1995 and up from $6.1 million in 1994. The decrease in earnings in 1996 resulted mainly from lower interest income compared with 1995.
Refund Anticipation Loan Program
Through BNB, RALs are made to consumers entitled to a tax refund who electronically file their returns with the Internal Revenue Service (IRS) through either H&R Block's (Block) electronic filing system or systems of other independent electronic filers approved by the IRS. After the return is processed, refund proceeds are directly transferred from the IRS via electronic funds transfer to a unique customer loan/deposit account at BNB, with the proceeds applied to repay the outstanding loan. In early February 1995, the IRS began delaying the payment of the earned income tax credit (EITC) portion of the tax refund payable to BNB on returns filed in 1995, and subsequently confirmed that, when finally released, the held earned income portion would be sent directly to the taxpayer, rather than to BNB as directed by the taxpayer. This IRS action created serious collection problems for BNB as related credit losses totaled $96 million. Of the $314 million in RALs affected by the IRS's action, $248 million, or 79%, was recovered by year-end 1996. For discussion on the new BNB agreement with H&R Block Tax Services, Inc., see "Management Discussion and Analysis of Financial Condition and Results of Operations" under Item 7.
The RAL program rebounded dramatically in 1996 with aftertax income of $69.8 million as compared with an aftertax loss of $37.9 million in 1995 and aftertax income of $25.1 million in 1994. As mentioned in the Commercial Banking section, income includes BNB processing fees. Gross revenues in 1996 fell to $141.3 million from $152.6 million in 1995 while up from $81.1 million in 1994. The number of RALs made in 1996 fell slightly to 2,650,000 from 2,717,000 in 1995 and 2,829,000 in 1994. The average loan amount was $853 in 1996 down from $1,162 in 1995 and $1,452 in 1994. The decrease in RALs made and the average loan amount is the result of more stringent credit criteria and the decision to suspend lending on the EITC portion of tax refunds. BNB will resume lending on the portion of tax refunds attributable to the EITC in 1997, primarily to prior customers in good standing.
Insurance Operations
Operations of the Beneficial Insurance Group (BIG) consist primarily of The Central National Life Insurance Company of Omaha (CNL) and its subsidiary, First Central National Life Insurance Company of New York (FCNL), which underwrite life and disability consumer credit insurance. In mid-1993, BIG acquired Wesco Insurance Company (Wesco), a property/casualty insurance company licensed in 41 jurisdictions. The addition of Wesco allowed BIG to directly underwrite the credit property coverage for the Beneficial consumer finance network. In addition, insurance agency relationships are maintained with several outside insurance companies that offer selected non-credit related products. These products are marketed chiefly through the domestic Beneficial loan office network. Agency operations earn a commission, while the insurance risk of loss rests with the insurance carrier. In October 1995, BFC Insurance Limited, located in Ireland, began to provide credit-related life, accident and health insurance products on United Kingdom originations.
CNL and its subsidiary, FCNL, rank among the industry leaders in the highly specialized consumer credit insurance marketplace, offering both life and disability coverages. The credit products are generally marketed through the U.S. consumer finance subsidiary network. During 1996, A.M. Best again affirmed its rating of A+ (Superior) for CNL. CNL also carries a claim-paying ability rating of AA, which is considered excellent, from Standard & Poor's Corporation.
Credit life insurance policies typically cover the life of the borrower and provide for the full payment of the outstanding balance in the event of the insured's death. Credit accident and health insurance policies provide for the payments of the installments as they become due on the insured's obligation during a period of unemployment or disability due to illness or injury. Credit property insurance is written to protect the property pledged as security for the obligation. Purchases of credit life and credit accident and health are entirely voluntary and at the borrower's request. Additionally, purchases of property insurance are also at the borrower's request, except for property damage coverage for property pledged as collateral if the borrower does not provide evidence of coverage with another insurance carrier.
In late 1995, the decision was made to exit the annuity business based on the conclusion that this product line could not offer acceptable profitability or a strategic fit with the core business. Further, recent research indicated that the Beneficial core consumer is likely to remain a borrower well into their mature years. In March 1996, CNL effectively disposed of the $957 million annuity portfolio to SunAmerica Life Insurance Company through a co-insurance agreement. Accordingly, approximately $900 million of investment securities were sold or transferred to SunAmerica, which resulted in capital gains on disposition of investments and an $8.4 million gain after consideration of related taxes. As a result of the disposition, a substantial upstream dividend of $124 million was paid to Beneficial Corporation at year-end 1996.
The 1996 and 1995 earnings improvement was driven by BIG's successful focus on credit insurance sales opportunities within the rapidly growing Beneficial customer base. Reflecting the overwhelming attractiveness of this customer group and distribution channel, BIG also elected during 1996 to exit the minimally profitable non-affiliated credit insurance business conducted with other consumer lenders. This decision will not materially affect either the Company's financial condition or results of operations.
BIG's total net premiums written in the U.S., largely by CNL, were $169.2 million in 1996, down 11% from $189.2 million in 1995. Total net premiums written in Ireland were pounds 27.5 million ($43.0 million) in 1996, up from pounds 6.1 million ($9.6 million) in 1995. Total credit premiums written in the U.S., were $159.7 million in 1996 compared with $164.8 million in 1995. Premiums written through the loan office network increased 9% to $139.2 million from $127.9 million in 1995.
The following table sets forth information concerning the consolidated insurance operations (U.S. and Ireland) (in millions):
Years Ended December 31
*Includes gain on disposition of annuity-related assets.
Investment income (net of interest paid on annuities) decreased 18% to $42.7 million in 1996 from $52.1 million in 1995 and $50.1 million in 1994. Investment yield declined to 6.56% at the end of 1996 compared with 7.21% in 1995 and 1994. The decline is due to the disposition of the annuity block and the investment portfolio. The market value of investments at $479 million at year-end 1996, was down significantly from $1.5 billion at year-end 1995 reflecting the transfer of assets related to the annuity block.
Real Estate Investments
Harbour Island is a 177-acre, mixed-use real estate development attractively located off the southern waterfront of downtown Tampa, Florida. The island is connected to downtown Tampa by two bridges. The Development of Regional Impact plan for full development of the island has been approved and provides for commercial, hotel, residential and retail space.
At year-end 1996, the investment in and advances to Harbour Island amounted to $80 million, down from $89 million at the end of 1995. Some of the more significant assets of Harbour Island include approximately 63 acres of undeveloped land, a 300-room "four star" hotel (currently under lease to Wyndam Hotels), and a mixed-use office/retail operation currently being leased. This reduction in the Company's investment was largely due to the sale of two luxury garden apartment complexes which netted a pretax gain of approximately $1.6 million. The lessee of the hotel has full operating responsibilities and makes basic rental payments to Harbour Island. Contingent rent is received if net operating income exceeds the basic rent plus a management fee.
On a fully debt-funded basis, Harbour Island incurred a pretax operating loss of $18.7 million for 1996, compared with pretax losses of $19.5 million in 1995 and $18.0 million in 1994. The project is charged interest on all net cash advanced since inception at Beneficial's annual overall melded cost-of- funds rate. Accordingly, nearly all of the losses in recent years represent interest cost to carry and non-cash depreciation charges. However, until significant parcels of the raw land or entire ventures are sold, accounting losses from Harbour Island are not likely to decline substantially because of the continuing significant cost to carry.
Other Real Estate
Subsidiaries of the Company also own nearly 700 acres of real estate adjacent to the Peapack, New Jersey, office complex. Including buildings, this real estate is carried at approximately $15 million. Sales of significant parcels of this land are not planned for the immediate future.
Financing
The Company and its subsidiaries obtain funds both in the United States and in foreign markets through sales of long-term debt securities and commercial paper and through short-term borrowings on unsecured lines of credit from banks. At December 31, 1996, long-term debt totaled $8,631 million (including $3,816 million of variable-rate medium-term notes) and short-term borrowings aggregated $4,169 million (consisting of $3,695 million of commercial paper and $474 million of bank borrowings). In addition, deposits payable totaled $635 million. Lines of credit are used to support commercial paper borrowings by the Company and its subsidiaries. At December 31, 1996, the total of all lines of credit was $4,212 million. In 1995, in support of commercial paper issuances, the Company concluded a $3 billion, five-year, syndicated revolving credit agreement, which replaced the various one- and three-year bilateral agreements. The unused portion of all lines of credit was $3,795 million at December 31, 1996. The overall, weighted average annual interest cost, including the costs of maintaining lines of credit, of all short- and long-term borrowings of the Company and consolidated subsidiaries was 6.54%, 7.22%, 6.57%, 6.77%, and 7.87% in 1996, 1995, 1994, 1993 and 1992, respectively.
Continuously offered medium-term notes (MTNs) are the primary vehicle used by the Company to place senior term debt. During 1996, $1.8 billion of variable-rate MTNs were sold at an all-in cost roughly equivalent to the Company's cost of commercial paper borrowings. The average maturity was 2.4 years. In addition, fixed-rate MTNs provided $.6 billion in funds during 1996, at an average coupon of 6.54% and a weighted average maturity of 6.5 years The Company had available under a shelf registration with the Securities and Exchange Commission $1.5 billion of unissued debt securities at the end of 1996.
Beneficial Corporation guarantees the borrowings of its Canadian, United Kingdom, and German subsidiaries, thereby increasing such subsidiaries' access to local capital markets and minimizing interest costs for these foreign operations. The Canadian operation is funded through commercial paper borrowings and notes sold in the Canadian financial market. The United Kingdom operation generates a modest amount of deposits but is chiefly funded through bank borrowings, sterling commercial paper sales, and medium-term debt placements. The German consumer banking subsidiary is funded chiefly with deposits.
Regulations
Real estate secured loans are supervised under and regulated by state legislation, which generally requires that the lender be licensed. Most states do not limit rate, but rate is a competitive factor whether limited or not. While the statutes of several states place no maximum limit on the contractual term of closed-end loans secured by real estate, the consumer finance subsidiaries generally limit loans of this type to periods ranging from 60 to 180 months. The consumer finance subsidiaries also operate under consumer finance acts (small loan statutes), which typically require that the lender be licensed. Licenses are subject to revocation for cause. The subsidiaries also make non-real estate secured installment loans under statutes other than consumer finance acts. The banking subsidiaries are subject to regulations of certain federal agencies and undergo periodic examination by these regulatory authorities.
The insurance operations are subject to regulation in the jurisdictions in which they are authorized to conduct business. Generally, such laws cover, among other things, types of insurance that may be sold, policy reserve requirements, permissible investments, premiums charged, limitations on the amount of dividends payable by any insurance company and guidelines and standards with respect to dealings between insurance companies and affiliates. In the United States, most states have also enacted insurance holding company legislation pertaining to insurance companies and their affiliates.
The consumer finance subsidiaries are required to comply with the Federal Truth-in-Lending Act, which requires, among other things, disclosure of pertinent elements of consumer credit transactions, including the finance charges and the comparative costs of credit expressed as an annual percentage rate. In addition, the subsidiaries are also required to comply with the Federal Equal Credit Opportunity Act (which prohibits discrimination in any aspect of a credit transaction on the basis of sex, marital status, race, color, religion, national origin, age, receipt of income from a public assistance program or the good faith exercise of rights under the Federal Consumer Credit Protection Act) and with the Real Estate Settlement Procedures Act.
The products and operations of the international subsidiaries are subject to regulations in their respective counties. The Canadian operations are subject to federal and provincial legislation which regulates various aspects of its operations, including disclosure of contractual terms, collection practices and creditor remedies. The United Kingdom subsidiary is an authorized institution under the Banking Act 1987 and, as such, is subject to supervision by the Bank of England and holds a full license under the Consumer Credit Act of 1974. As a fully-licensed German Bank, Beneficial Bank AG is regulated by the Federal German Banking Act and other Federal and consumer legislation. The Bank is also a member of the Deposit Insurance System for private German banks which provides specific standards for its members.
Competition
In the consumer finance industry, the Company's subsidiaries face strong competition from banks, savings institutions, credit unions, finance companies and other financial institutions. Rate competition among finance companies is minimal for small consumer loans. The subsidiaries compete for these loans primarily on the basis of name recognition, service and reputation. There is considerable rate competition within the home equity loan market. Competition has accelerated in recent years, as smaller companies have aggressively entered the sub-prime market using securitization as essentially their sole funding tool. This approach has reduced the cost of capital and lowered industry entry barriers. In six years, BNB USA has grown to one of the nation's largest private-label credit card banks. This fiercely competitive business is based upon service, pricing and product flexibility. In addition, the business of the subsidiaries may be adversely affected in the future by unforeseen factors, such as rate reductions, credit restrictions, economic conditions, judicial decisions or legislative acts.
Item 2.
Item 2. PROPERTIES.
The Company and its subsidiaries do not hold any substantial amount of property other than the real estate investments described previously and properties acquired through a security interest. Substantially all of the property utilized by the Company and its subsidiaries are held under lease. Loan offices generally have lease terms of five years with a renewal option for a like term. Most of the leases provide for cancellation rights after two years. Information as to minimum rental commitments on leased property and periods of expiration is contained in Note 25 to the financial statements.
Item 3.
Item 3. LEGAL PROCEEDINGS.
Not applicable.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Beneficial Corporation's Common Stock is listed on the New York Stock Exchange. The aggregate amounts of common dividends paid during 1996 and 1995 were $105.3 million and $94.5 million, respectively. As of March 1, 1997, Common Stock was held of record by 14,132 stockholders. Additional information pertaining to the Company's Common Stock is set forth below:
Three Months Ended
Item 6.
Item 6. SELECTED FINANCIAL DATA.
BENEFICIAL CORPORATION AND SUBSIDIARIES FIVE-YEAR SUMMARY (in millions, except where noted)
(a) Income from continuing operations includes a provision for credit losses related to the German liquidating portfolio of $15.0 ($.28 per share) in 1995 and $38.0 ($.72 per share) in 1994, and a $5.9 aftertax ($.11 per share) provision for restructuring in 1995. (b) 1995 and 1994 do not reflect $15.0 (0.12% of average monthly balances) and $38.0 (0.33% of average monthly balances), respectively, of credit losses related to the German liquidating loan portfolio.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis provides information that management believes to be relevant to an understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and the notes thereto.
Financial Condition
Reflecting two sales of $1,919 million of variable-rate revolving home equity lines of credit to trusts created as a real estate mortgage investment conduit (REMIC), the Company's leverage (the ratio of interest-bearing debt to total equity) decreased to 7.93 times at the end of 1996 from 8.29 times at the end of 1995. The Company also completed a $1,104 million securitization in 1995 and is planning further securitizations during 1997.
The Company believes sufficient cash resources exist to support its long-term growth strategies. These resources include cash generated by operations (including repayments of receivables) and the Company's ability to obtain additional financing through short-term borrowings (primarily commercial paper supported by committed bank lines), long-term borrowings through both private and public debt offerings and periodic securitizations. The Company's long-term debt is rated A or A+ and commercial paper 1 by all four major rating agencies. Growth in finance receivables is primarily funded through debt issuance.
Total owned finance receivables increased $1,256 million, or 9%, in 1996, compared with a gain of $1,094 million, or 9%, in 1995. Similar to 1995, growth was the strongest during the fourth quarter and from a product line perspective, was highest in private-label revolving charge programs marketed to large regional and national retailers by Beneficial National Bank USA (BNB USA), the Company's credit card bank subsidiary. Gains at BNB USA were $1,325 million during 1996, resulting in year-end receivables of $3,870 million. Of these gains, 87% are attributable to three merchants, Best Buy Company, Inc. (60% of the total gain), Kmart Corporation and PriceCostco Inc. These three merchants also account for 64% of year-end receivables. Reflecting the above-mentioned securitizations, variable-rate real estate receivables declined $655 million or 20% in 1996. Personal unsecured receivables increased $227 million or 8%. In total, unsecured loan portfolios represented 58% of the Company's total owned receivables outstanding at year-end 1996, versus 50% at the end of 1995 and 43% at the end of 1994.
Total managed receivables increased $2,331 million, or 16%, compared with a gain of $1,577 million or 12% in 1995. This trend was in large part the result of 1996 growth at BNB USA exceeding 1995 growth by $394 million. Reflecting this year's securitizations, as well as the remaining balance of receivables serviced from previous securitizations, total receivables sold with servicing retained were $2,189 million at December 31, 1996, compared with $1,114 million at year-end 1995.
Total loans owned delinquent two months and greater on a contractual basis increased to 3.38% at the end of 1996 from 2.98% at the end of 1995. This increase reflects both a greater proportion of, and higher delinquency in, the credit card and unsecured portfolios in addition to a weaker overall consumer credit environment in North America and the United Kingdom. On a loans managed basis, delinquency similarly increased to 3.20% at the end of 1996 from 2.97% at the end of 1995. The table below details delinquency by product on both an owned and managed basis for 1996 and 1995.
Managed Basis Owned Basis
Net chargeoffs were $316.9 million versus $209.4 million in 1995 ($224.4 million including the charges related to the Company's German liquidating loan portfolio, discussed further in the Results of Operations that follow). As a percentage of average receivables, net chargeoffs increased to 2.26% from 1.64% in 1995 (1.76% including the German liquidating loan charges). At year-end 1996, the allowance for credit losses as a percentage of finance receivables owned was 3.40%, compared with 3.03% at the end of 1995. At this level, the allowance covers full-year chargeoffs 1.57 times, compared with 1.94 times in 1995 (excluding German liquidating loan charges). During the year, the balance of the reserve increased $92.1 million to $498.2 million.
At March 31, 1996, the Company effectively disposed of the $957 million annuity portfolio of the Central National Life Insurance Company of Omaha, a subsidiary of the Beneficial Insurance Group, Inc., to SunAmerica Life Insurance Company through a co-insurance agreement. Accordingly, approximately $900 million of investment securities were sold or transferred to SunAmerica as part of this disposition, which resulted in capital gains on disposition of investments and an $8.4 million gain, after consideration of related taxes. Although the risks of ownership have been substantially transferred to SunAmerica by the co-insurance agreement, SunAmerica has not yet legally assumed the policies. Therefore, the remaining $908 million in policy reserves related to the annuity portfolio and an offsetting deposit in other assets remain on the Company's balance sheet to be reduced as SunAmerica legally assumes or rewrites the policies. These policy reserves declined $49 million through December 31, 1996.
Investment securities decreased $941 million, or 63%, in 1996, largely related to the disposition of the annuity portfolio. Following the decision to exit the annuity business, and given the one-time reclassification allowed temporarily under "A Guide to Implementation of Statement of Financial Accounting Standards (SFAS) No. 115," the Company transferred $795 million of debt securities from the "Held to Maturity" category to the "Available for Sale" category in December 1995, and as a result, a separate component of shareholders' equity was increased by $12 million for net aftertax unrealized gains on the transferred securities. The $15.8 million reduction in unrealized gains in a separate component of shareholders' equity during 1996 was largely the result of the annuity portfolio disposition. See Note 7 to the Financial Statements for more information on investment securities.
On November 21, 1996, the Company's Board of Directors authorized the repurchase of up to 1.2 million, or approximately 2%, of outstanding common shares. The shares will be repurchased from time-to-time at prices deemed appropriate by the Company and will be placed in treasury for general corporate purposes. This program corresponds to the $169 million in dividends paid by the insurance, commercial banking and Canadian subsidiaries in the fourth quarter of 1996.
Results of Operations
Net income in 1996 increased to $281.0 million from $150.5 million in 1995 and $177.7 million in 1994. The earnings improvement in 1996 stemmed primarily from the turnaround of the tax refund anticipation loan (RAL) business. For the year, consolidated results included pretax earnings of $116 million or $70 million aftertax from the RAL business, versus a pretax loss of $63 million or $38 million aftertax in 1995 and pretax earnings of $42 million or $25 million aftertax in 1994. The RAL business was severely impacted in 1995 when the Internal Revenue Service (IRS) released payment of the earned income tax credit (EITC) portion on thousands of refunds directly to the taxpayers who had already received the approximate amount of their refunds through the RAL program, rather than to the Company's banking subsidiary to repay the loan as directed by the taxpayer. Conversely, the 1996 RAL results benefited from prior-year bad debt collections of $48.6 million as well as smooth and efficient processing of tax refunds by the IRS. For the 1996 season, the Company's subsidiary, Beneficial National Bank (BNB), did not lend on the EITC portion of any refunds. In 1997, BNB will resume lending on the EITC portion of refunds, primarily to prior customers in good standing.
In July 1996, BNB signed a new 10-year agreement with H&R Block Tax Services, Inc., giving BNB the exclusive right to offer RALs to eligible H&R Block (Block) customers in all of Block's company-owned offices. In return for the longer-term exclusivity given to BNB, the new agreement gives Block a share in both the revenue and credit risk of the RALs by allowing Block Financial Corporation to purchase an interest in the portfolio of RALs originated by Block's company-owned offices. For the first two years of the contract, the Block interest will be 40%; for years three through 10, the interest will be 49.99%. Although some near-term profits will be sacrificed, the new agreement provides longevity and stability to BNB's RAL product. Prior agreements called for the renegotiation of a contract every three years.
The absolute lending spread increased from the preceding year by 11% in both 1996 and 1995, with the increases largely attributable to higher average owned receivables. As a percentage of average owned receivables, the lending spread was 9.84%, compared with 9.71% in 1995 and 9.65% in 1994. The average yield on the portfolio was 15.85% in 1996, compared with 16.32% in 1995 and 15.67% in 1994. Over the same periods, interest expense as a percentage of average owned receivables was 6.01% in 1996 versus 6.61% in 1995 and 6.02% in 1994. In North America, the fixed-rate real estate secured loans originated in 1996 were written at an average yield of 13.23%, compared with 13.85% in 1995 and 14.51% in 1994, while variable- rate real estate secured loans were written at a spread over prime of approximately 366 basis points in 1996, compared with approximately 400 and 440 basis points during the prior two years. In 1996, the average yield on unsecured personal loans written in North America was 25.64%, compared with 25.41% and 25.28% in 1995 and 1994, respectively. The average yield on the credit card portfolio was 16.02% in 1996, versus 17.45% in 1995 and 16.26% in 1994.
Interest expense decreased $3.4 million from the preceding year in 1996 and increased $142.6 million in 1995. 1996 worldwide average borrowing costs decreased to 6.54% from 7.22% in 1995 and 6.57% in 1994. Higher borrowing levels added $101.4 million and $72.9 million in interest costs from the preceding year in 1996 and 1995, while the corresponding fluctuations resulting from interest rate changes were a decrease of $104.8 million in 1996 and an increase of $69.7 million in 1995. The Company minimizes its exposure to interest rate risk by closely managing the gap between its interest-sensitive assets and liabilities. The Company utilizes interest rate swaps to moderate its exposure to interest rate fluctuations. See Notes 2h and 23 to the Financial Statements for more information on derivatives.
Lending spreads, as a percentage of average receivables, were up modestly from 1995 in both the U.S. consumer finance subsidiaries and in the international operations. The increased lending spread from 1995 also reflected a reduced cost of carry on RAL receivables. These favorable trends were mitigated by lower spreads at BNB USA, where the interest margin declined by approximately 120 basis points from 1995. This spread reduction was largely the result of a higher proportion of receivables outstanding during the year from special financing plans, which defer customer interest for up to 13 months, as well as a higher level of convenience usage (i.e., customers paying off balances within the grace period before finance charges accrue). Further, special financing portfolio performance was not consistent with pricing assumptions. BNB USA is in the process of attempting to rectify these situations. At December 31, 1996, special financing plans represented 56% of BNB USA's portfolio.
BNB USA profitability was further dampened by $65 million of up-front loan loss provisioning on the strong receivables growth experienced in 1996 and $10 million of start-up costs relating to programs for Kmart and PriceCostco. Accordingly, BNB USA earnings were at virtual breakeven in 1996, versus pretax profits of $35.1 million and $9.8 million in 1995 and 1994, respectively. While management anticipates considerable profit improvement at BNB USA in 1997, the actual results will depend on the outcome of pricing renegotiations with a number of the larger merchants, the magnitude of special financing conversion to standard plans, and the level of continuing start- up costs associated with the two new merchant programs.
The Beneficial Insurance Group, Inc., reported pretax income of $104.0 million ($79.6 million excluding the annuity- related capital gains) in 1996, versus $77.1 million and $69.9 million in 1995 and 1994. These trends reflect the continuation of strong production of credit insurance and well- controlled loss ratios. During the third quarter of 1996, the decision was made to discontinue marketing credit insurance through non-affiliated independent credit providers. The customer base of this business was primarily commercial banks and thrift institutions in the Northeast. This decision will not materially affect either the Company's financial condition or results of operations.
Harbour Island Inc., the Company's real estate subsidiary in Tampa, Florida, recorded a pretax loss, on a fully debt- funded basis, of $18.7 million in 1996, down from $19.5 million in 1995, but increased from $18.0 million in 1994. The 1996 results reflect the sale of two luxury apartment complexes at a pretax gain of $1.6 million. These sales reduced the Company's investment in Harbour Island by approximately $10 million. Nearly all of the losses in recent years represent imputed interest costs computed at the Company's overall melded cost of funds rate and depreciation charges. The pretax loss relating to Harbour Island Inc. is likely to continue at current levels, unless substantial portions of the real estate on Harbour Island are sold.
Other revenues increased 99% in 1996 from the preceding year following a decrease of 4% in 1995. The 1996 increase in other revenue of $228.8 million related to the previously mentioned turnaround of the RAL business, the capital gain related to the disposition of the annuity portfolio, increased servicing revenue relating to securitized receivables and securitization gains of $55.3 million in 1996 versus $23.5 million and $15.4 million in 1995 and 1994, respectively. Comparing 1995 with 1994, the previously discussed fluctuations from the RAL business were largely offset by increased servicing revenue and gains from the aforementioned securitization.
The provision for credit losses increased $118.6 million, or 42%, in 1996 compared with an increase of $81.5 million, or 41%, in 1995 (excluding the German charge). The increase in 1996 and 1995 reflects higher chargeoffs, as well as additions to the allowance for credit losses corresponding to increased unsecured receivables growth. The increased chargeoffs were entirely in the unsecured product lines, reflecting both the expected maturing of the BNB USA portfolio and a higher incidence of bankruptcies in North America. As a percentage of receivables, credit card chargeoffs increased to 3.81% in 1996 from 2.73% in 1995, and personal unsecured chargeoffs increased to 4.55% from 3.79% in 1995. Management expects this credit card trend to continue in 1997 (though at a less rapid rate of increase than in prior years) as the portfolio matures, while the personal unsecured rates will continue to reflect the economic cycle and the economic health of the consumer. As a percentage of average owned receivables, the provision was 2.95%, compared with 2.27% in 1995 (2.39% including the German liquidating loan charges).
Salaries and other operating expenses, combined, were up 10% in 1996 and 14% in 1995 over the respective prior years, generally reflecting normal increases attributable to growth in receivables. These trends also reflected the previously mentioned costs associated with new merchant programs and expenses relating to a second data center opened during the fourth quarter of 1996. The 1996 comparisons with the prior year benefited from lower RAL collection expenses, and savings from the fourth-quarter 1995 restructuring. As a percentage of average managed receivables, salaries and other operating expenses were 6.65%, 6.85% and 6.89% in 1996, 1995 and 1994, respectively.
In December 1994, the Company announced its intent to sell its German consumer banking subsidiary, BFK Bank AG (BFK). Simultaneously, the Company recorded a $38.0 million, or $0.72 per share, charge to reflect potential credit losses and related expenses at BFK on a block of loans granted to finance the purchase of campground sites by German consumers from Fundus Grundstuecks GmbH (Fundus), a German financial services company that ultimately went bankrupt.
During 1995, negotiations and other work-out efforts relating to the Fundus loans, both apart from and in conjunction with the possible BFK sales, did not progress as anticipated in the original loss estimates. As a result, in December 1995, the Company recorded a $15.0 million, or $0.28 per share, charge for additional potential losses relating to the Fundus portfolio. In December 1995, the Company announced the decision to retain BFK as no acceptable offers were received, and new management was put in place. Following a thorough analysis of BFK's entire loan portfolio, and the supporting collateral, the Company recorded a $10.0 million, or $0.19 per share provision for loan losses related to other (non- Fundus) commercial loans. None of the above mentioned German charges had a tax offset because of BFK's net operating loss position at that time. In October 1996, BFK was renamed Beneficial Bank AG (BBAG).
Also in October 1996, a settlement agreement relating to most of the Fundus loans was concluded. In return for certain cash payments from the borrowers, the loans were canceled and BBAG obtained title to the underlying collateral. The previously established loss reserves were evaluated in light of the settlement and determined to be adequate by management. The campground sites will be professionally managed until liquidation. This collateral had a carrying value of $5.0 million at December 31, 1996.
In the fourth quarter of 1995, the Company implemented an expense-reduction program principally within its headquarters operations. This program resulted in a $9.8 million pretax restructuring charge, which was largely early retirement and severance expenses corresponding to workforce reductions of 225. This restructuring charge reduced net income on an aftertax basis by $5.9 million or $0.11 per share in 1995.
Although the statutory rate was 35% for all years, the Company's effective tax rates were 38.7% in 1996, 44.3% in 1995 and 45.5% in 1994. The effective rate in 1996 benefited from the utilization of approximately $8 million of additional foreign tax credits, resulting from the Company's election to modify the methodology for calculating foreign tax credit limitations. This election is expected to improve the Company's ability to utilize foreign tax credits in the future with a resulting benefit to the future effective rate. The effective tax rate was substantially higher in 1995 and 1994 because of the German charges, which were not offset by tax benefits. Beyond these items, taxes are higher than the U.S. federal statutory rate primarily because of state income taxes. Because of the Company's earnings level, a valuation allowance is established only on foreign tax credit carryforwards. The net deferred tax assets is approximately $232 million at December 31, 1996. Management has determined, based on the Company's history of prior operating earnings and its expectations for future earnings, that operating income of the Company will be sufficient to recognize fully these deferred tax assets. See Note 17 to the Financial Statements for further discussion.
In 1992, the IRS completed its examination of the Company's federal income tax returns for 1984 through 1987 and proposed certain adjustments that relate principally to activities of the Company's former subsidiary, American Centennial Insurance Company, prior to its sale in 1987. Although prepayments were made thereon in 1992, the Company contested the proposed adjustments within the administrative appeals process of the IRS. During the third quarter of 1996, the IRS issued a statutory Notice of Deficiency asserting the unresolved adjustments. The Company fully intends to oppose the adjustments through litigation. Management does not expect the ultimate resolution of these issues to have a material effect on the Company's financial position, results of operations or liquidity. See Note 27 to the Financial Statements for further discussion of the assessment.
During the fourth quarter of 1996, the Company decided to implement a broad-based option program for substantially all employees who do not participate in the existing option plan. This program resulted in the issuance of approximately 900,000 options on January 31, 1997, at a strike price 20% above the market price at the date of issuance. See Note 20 to the Financial Statements for further information regarding stock options.
Changes in Cash Flow and Liquidity
The principal sources of cash are collections of finance receivables, proceeds from the issuance of short- and long-term debt, and cash provided from operations (including maturities and repayments of its receivables). The monthly collections of cash principal as a percentage of average receivables were 5.51% in 1996 and 5.03% in 1995. Also, from time to time, subsidiaries of the Company sell home equity loans through securitizations in the capital markets.
Substantial additional liquidity is available through committed bank credit lines that the Company maintains in support of its commercial paper borrowings. During the fourth quarter of 1995, the Company entered into a $3 billion, five- year syndicated revolving credit agreement, which replaced the various one-and three-year bilateral agreements, totaling $2.9 billion, that the Company had previously maintained. This syndicated revolving credit agreement has a $1.0 billion net- worth test. At year-end 1996, total standby lines of credit were $4.2 billion, of which $3.8 billion was unused.
One of the Company's financial strengths is its ability to raise long-term debt in a wide variety of domestic and international markets. Including medium-term notes, long-term debt represented 64% of the Company's funding base at the end of 1996, compared with 63% at the end of 1995. In 1996, the Company issued $1.8 billion in variable-rate medium-term notes at an all-in cost slightly above the Company's cost of commercial paper borrowings. The average maturity was 2.4 years. Fixed-rate medium-term note issuances totaled $0.6 billion, at an average coupon of 6.54% and an average maturity of 6.5 years. In addition, the Company had available under shelf registrations with the Securities and Exchange Commission $1.5 billion of unissued debt securities at year-end 1996.
The Company hedges the majority of its investment in foreign subsidiaries by selling at-the-money (spot) call options and buying out-of-the-money (spot) put options on Canadian dollars and British pounds. With the exception of the strike rates, all terms of the call and put are identical. The notional amount of each option is an amount that will generally produce offsetting gains or losses (on an aftertax basis) to the gains or losses produced by the underlying net investment. The combination of these instruments (a "no cost collar") is effectively a partial hedge, as hedging gains or losses occur only when the spot rates fluctuate outside the range of the respective strike rates. These option transactions generally have a maturity of three to six months. Foreign currency swaps and forward exchange agreements are also utilized to hedge a portion of the Company's investment in foreign subsidiaries.
The Company monitors the effectiveness of its hedging program through a quarterly analysis comparing the foreign exchange gains and losses on the investments in foreign operations to hedge gains and losses because of currency fluctuations. Hedge gains and losses are calculated by comparing the option strike rate to the spot exchange rate on each financial statement date as though the option were exercised at that time. There were no amounts recognized in net income during the three years ended December 31, 1996. Gains and losses in excess of the amount needed to offset gains or losses on investments in foreign subsidiaries because of currency fluctuations are not expected given the above hedging strategy. See Notes 2h and 23 to the Financial Statements for further information on derivatives.
The Company minimizes all off-balance-sheet credit risk exposure by limiting the counterparties to major international banks and financial institutions. The Company has never experienced nonperformance by any counterparty.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," and SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS No 125." SFAS 125 as amended by SFAS 127 standardizes the accounting and disclosures required for securitizations and transfers and servicing of other financial assets. The statement is effective for certain transactions occurring after December 31, 1996. The statement will not have a material effect on the Company's financial position or result of operations.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF BENEFICIAL CORPORATION:
We have audited the accompanying consolidated balance sheets of Beneficial Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Beneficial Corporation and Subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey January 28, 1997
BENEFICIAL CORPORATION AND SUBSIDIARIES BALANCE SHEET
See Notes to Financial Statements.
BENEFICIAL CORPORATION AND SUBSIDIARIES STATEMENT OF INCOME AND RETAINED EARNINGS
Years Ended December 31
See Notes to Financial Statements.
BENEFICIAL CORPORATION AND SUBSIDIARIES STATEMENT OF CASH FLOWS
Years Ended December 31
See Notes to Financial Statements.
BENEFICIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (in millions, except per share amounts)
1. NATURE OF OPERATIONS
Beneficial Corporation (Company) is a holding company, subsidiaries of which provide financial services through their various consumer finance, banking and insurance operations located throughout the United States, Canada, Germany, Ireland and the United Kingdom. The Beneficial consumer finance loan office network includes more than 1,100 offices, offering both real estate secured loans and unsecured loans, as well as credit- related insurance products. Additionally, other subsidiaries offer credit card products (largely private-label), tax refund anticipated loans and selected non-credit-related insurance products. Approximately 40% of loans owned outstanding are secured by real estate. The majority of net income is derived from the consumer finance operations and credit insurance products related to the consumer finance business. Operations in any one country outside the United States are not significant in relation to the Company's overall operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND PRACTICES
a) Basis of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries, after elimination of all significant intercompany accounts and transactions, and have been prepared in accordance with generally accepted accounting principles. Certain prior- period amounts have been reclassified to conform with the 1996 presentation.
b) Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
c) Finance Operations. The financial statements are prepared on the accrual basis. Finance charges are recognized as income using the interest method or methods that produce similar results. Loan origination fees are deferred and amortized into interest income over the estimated lives of the related loans, except to the extent that they offset directly related lending costs. Direct origination costs for credit cards are deferred and amortized over 12 months. Income accrual is generally suspended after 30 days on delinquent loans.
Provisions for credit losses are charged to income in amounts sufficient to maintain the allowance for credit losses at a level considered adequate to cover the losses of principal and interest in the finance receivables portfolio.
Delinquent real estate secured receivables are reviewed individually by management, and accounts known to be uncollectible are charged off. In general, other receivables are automatically charged off after no payment has been made for six months. For all types of loans, collection efforts are generally continued.
Real estate properties acquired through foreclosure are carried at the lower of cost or estimated fair market value, minus estimated costs to sell, determined on an individual asset basis. Valuations are periodically performed by management, and an allowance for possible losses is established if the book value exceeds the estimated fair market value minus estimated costs to sell. Residual gains or losses on disposition are recorded in expense as incurred.
Certain real estate secured loans are accounted for as foreclosed property ("in-substance foreclosure") even though the actual foreclosure has not occurred. These loans are carried at the lower of cost or estimated fair value when the borrower has little or no equity in the collateral at its current estimated fair value and it appears unlikely that the borrower will repay the loan other than through liquidation of the property.
d) Receivables Sold with Servicing Retained. Periodically, subsidiaries of the Company have sold home equity loans to trusts created as real estate mortgage investment conduits and retain the servicing. At the date of such securitizations, the Company allocates the total cost of the home equity loans to mortgage servicing rights and the loans based on their relative fair values. Fair values are determined based on present valuing the expected future cash flows using a discount rate commensurate with the risks involved, adjusted for prepayments and bad debts. Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing income.
e) Insurance Operations. The Company's insurance subsidiaries are engaged in writing credit life, credit accident and health insurance, credit property and ordinary life insurance. Premiums on credit life insurance are taken into income using the sum-of- the-digits or actuarial methods, except in the case of level-term contracts, which are taken into income using the straight-line method over the lives of the policies. Premiums on credit accident and health insurance are generally taken into income using an average of the sum-of-the-digits and the straight-line methods. Premiums for credit property are generally taken into income using the sum-of-the-digits method or on a pro-rata basis. Premiums for ordinary life insurance are included in income when due. Premiums collected on annuity contracts are included as a liability in insurance policy and claim reserves. Policy reserves for credit life, credit accident and health insurance, and credit property are equal to related unearned premiums. Additionally, claim reserves for credit life, credit accident and health insurance, and credit property are adjusted to reflect claim experience. Liabilities for future life insurance policy benefits associated with ordinary life contracts are accrued when premium revenue is recognized and are computed on the basis of assumptions as to investment yields, mortality, morbidity and withdrawals.
f) Valuation of Investment Securities. Investments are owned principally by the insurance subsidiaries and consist primarily of debt securities. Investments in debt securities that the subsidiaries have both the ability and the intention of holding until maturity are classified as held-to-maturity securities and reported at amortized cost (remaining principal net of unamortized premiums or discounts). Investments that may be sold prior to maturity to support the subsidiaries' investment strategy, such as in response to changes in interest rates or tax deductibility of interest, are considered as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. The subsidiaries do not hold any securities for trading purposes. The cost of investments sold is determined on the specific cost identification basis.
g) Translation of Foreign Currencies. Operations outside the United States are conducted through subsidiaries located in Canada, Germany, Ireland and the United Kingdom. Assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet dates, while income and expense items are translated at the average exchange rates for each period covered by the statement of income and retained earnings. The resulting translation adjustments are included in accumulated foreign currency translation adjustments, a separate component of shareholders' equity.
h) Derivative Financial Instruments. To hedge its investment in foreign subsidiaries and to moderate its exposure to interest rate fluctuations, the Company enters into various transactions involving off-balance-sheet financial instruments. These transactions include options, currency swaps and forwards for foreign currency risk management and interest rate swaps and forward rate agreements for interest rate exposure management.
Gains or losses on foreign currency instruments designated as hedges of the Company's net investments in foreign subsidiaries are included with translation adjustments in shareholders' equity. Gains or losses on these instruments in excess of the amount needed to offset net investment losses or gains are included in income. The net amount of interest income and interest expense on agreements used to hedge interest rate exposure is recognized in interest expense over the lives of the instruments. The indices on derivatives used to hedge interest rate exposure match an index corresponding to either a specific long-term debt instrument or to a pool of short-term debt. The Company does not terminate these derivatives prior to maturity. In the unlikely event of termination, gain or loss would be reflected in the income statement, or deferred and recognized over the remaining life of the hedged instrument.
The Company does not serve as a financial intermediary to make markets in any off-balance-sheet financial instruments nor does it hold or issue derivative financial instruments for trading purposes.
i) Amortization of Intangible Assets. Premiums paid on receivables purchased are amortized using straight-line and accelerated methods generally over the estimated life of the loans. Excess cost applicable to acquisitions is generally amortized on a straight-line basis over 40 years.
j) Earnings per Common Share. Earnings per common share are computed by deducting dividend requirements on preferred stocks of the Company from net income and dividing the remainder by average common shares outstanding and their equivalents. None of the preferred stocks are common stock equivalents.
k) Cash Equivalents. The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.
3. PROVISION FOR CREDIT LOSSES ON GERMAN LIQUIDATING LOAN PORTFOLIO
In December 1994, the Company announced the intent to sell its German banking subsidiary, BFK Bank AG (BFK). Simultaneously, the Company recorded a $38.0, or $0.72 per share, charge to reflect credit losses and related expenses on a block of BFK loans granted to finance the purchase of campground sites by German consumers from Fundus Grundstuecks GmbH (Fundus), a German financial services company that ultimately went bankrupt.
During 1995, negotiations and other work-out efforts relating to the Fundus loans, both apart from and in conjunction with the possible BFK sale, did not progress as anticipated in the original loss estimates. As a result, in December 1995, the Company recorded a $15.0, or $0.28 per share, charge for additional potential losses relating to the Fundus portfolio.
In December 1995, the Company announced the decision to retain BFK as no acceptable offers were received, and new management was put in place. BFK was renamed Beneficial Bank AG (BBAG) in October 1996.
Also, in October 1996, a settlement agreement relating to most of the Fundus loans was concluded. In return for certain cash payments from the borrowers, the loans were canceled and BBAG obtained title to the underlying collateral. The previously established loss reserves were evaluated in light of the settlement, and in management's judgment were adequate and appropriate. The campground sites will be professionally managed until liquidation. This collateral had a carrying value of $5.0 at December 31, 1996.
4. PROVISION FOR RESTRUCTURING
In the fourth quarter of 1995, the Company implemented an expense- reduction program, principally within its headquarters operations. The resulting restructuring charge reduced net income by $5.9, or $0.11 per share, and was largely related to early retirement and severance expenses corresponding to workforce reductions of 225.
5. FINANCE RECEIVABLES
Finance receivables at December 31 consisted of the following:
Average receivables during the years ended December 31 were as follows:
From time to time, subsidiaries of the Company have sold home equity loans through securitizations and have retained collection and administrative responsibilities as servicer for the trust holding the home equity loans.
Scheduled contractual maturities of finance receivables owned to be received after December 31, 1996, were as follows:
While the statutes of several states place no maximum limit on the contractual term of closed-end loans secured by real estate, the consumer finance subsidiaries generally limit loans of this type to periods ranging from 60 to 180 months. Terms of closed- end unsecured loans and sales finance contracts generally do not exceed 60 months. It is the Company's experience that a substantial portion of all consumer receivables is renewed or repaid prior to contractual maturity dates. Accordingly, the previous tabulation should not be viewed as a forecast of future cash collections. During the years ended December 31, 1996 and 1995, cash collections totaled $8,943.2 and $7,443.3, respectively. The monthly collections of cash principal as a percentage of average receivables were 5.51% in 1996 and 5.03% in 1995.
6. ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses were as follows:
*Does not reflect $15.0 pertaining to German liquidating loan portfolio (see Note 3).
7. INVESTMENT SECURITIES
In the fourth quarter of 1995, the Company decided to exit its annuity business. The actual disposition of the annuity business and the capital gain from the sale of corresponding investments increased net income by $8.4, or $0.16 per share, in March 1996. In light of this decision, and the one-time reclassification allowed temporarily under "A Guide to Implementation of Statement of Financial Accounting Standards (SFAS) No. 115," the Company transferred $795.4 of debt securities from the "Held-To-Maturity" category to the "Available-For-Sale" category in December 1995. An unrealized gain of $12.4, net of income taxes of $6.7, was recorded in the separate component of shareholders' equity as a result of this transfer. As of December 31, 1996, shareholders' equity included a net unrealized gain of $2.6, consisting of a $3.8 net gain on the Available-For-Sale portfolio, offset by a $1.2 of applicable income taxes.
Investments at December 31 were as follows:
The contractual maturities of debt securities at December 31, 1996, are shown in the table that follows. Actual maturities may differ from contractual maturities because some borrowers may have the right to prepay obligations, with or without prepayment penalties.
Proceeds from sales of Available-For-Sale securities totaled $1,032.6 in 1996, compared with $97.5 in 1995. Gross gains of $27.5 in 1996 and $4.0 in 1995, and gross losses of $1.6 in 1996 and $0.4 in 1995, were realized on those sales.
8. OTHER ASSETS
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
10.SHORT-TERM DEBT
Short-term debt, including $916.9 and $922.9 relating to foreign subsidiaries at year-end 1996 and 1995, respectively, consisted of the following:
Selected details of short-term borrowings are as follows:
*Weighted average interest rates paid during the year have been determined by relating short-term interest costs (including the costs of maintaining lines of credit) for each year to the daily average dollar amounts outstanding.
The Company maintains committed revolving credit agreements in support of its outstanding commercial paper. At December 31, 1996, the Company had lines of credit of $4,211.5, of which $3,795.4 was unused. The most significant of these credit agreements has a net-worth test of $1,000. Annual commitment fee requirements to support availability of credit agreements at the end of 1996 totaled $4.1.
The impact of interest rate hedging activities on the Company's weighted average short-term borrowing rates and on the reported short-term interest expense were increases as follows: .13% and $5.1 in 1996; .05% and $1.7 in 1995; and .16% and $4.9 in 1994.
11.LONG-TERM DEBT
Long-term debt, including weighted average interest rates by year of maturity on debt outstanding at December 31, 1996, is shown below in the earliest year it could become payable:
The weighted average annual interest rates on debt outstanding at year-end were 6.84%, 7.24% and 7.62% for 1996, 1995 and 1994, respectively. Weighted average interest rates (including issuance costs) paid during the year on average long-term debt outstanding were 7.07%, 7.56% and 7.39% for years ended December 31, 1996, 1995 and 1994, respectively.
Long-term debt outstanding at December 31, 1996 and 1995, includes $3,815.7 and $2,817.4, respectively, of variable-rate debt that reprices based on various indices. Such variable-rate debt generally has an original maturity of one to two years.
The impact of interest rate hedging activities on the Company's weighted average long-term borrowing rates and on the reported long-term interest expense were increases (or decreases) as follows: .06% and $4.8 in 1996; .05% and $3.7 in 1995; and (-%) and ($.2) in 1994.
12.CAPITAL STOCK
Shares of capital stock outstanding were as follows:
In addition, the Company is authorized to issue 500,000 shares of preferred stock (no par value) and 2,500,000 shares of preferred stock ($1.00 par value). Included within such shares are 570,000 shares of Series A Participating Preferred Stock ($1.00 par value) that the Company is authorized to issue in connection with Preferred Stock Purchase Rights (see Note 14). None of these authorized preferred shares are issued or outstanding.
At December 31, 1996, a total of 166,113 shares of common stock was reserved for conversion of $5.50 Dividend Cumulative Convertible Preferred Stock.
13.ADDITIONAL CAPITAL
Additional capital increased by $35.3 and $23.5 in 1996 and 1995, respectively. The increase in both years resulted from stock issuances in connection with various employee stock plans, primarily the non-qualified stock option plan described in Note 20.
14.PREFERRED STOCK PURCHASE RIGHTS
In 1987, the Company issued one Preferred Stock Purchase Right (Right) for each outstanding share of common stock of the Company. Under certain circumstances, each Right entitles the registered holder to purchase from the Company one two-hundredth of a share of the Company's Series A Participating Preferred Stock at a price of $87.50, subject to adjustment. Until the Rights become exercisable, expire or are redeemed, they will automatically trade with the common stock but will at no time have voting power.
The Rights will be exercisable under circumstances generally involving certain acquisitions of, or tender offers for, the common stock, or if a 10% stockholder is declared an "Adverse Person" by the Board of Directors. If, at any time after the Rights become exercisable, but before they expire or are redeemed, the Company is acquired in a merger or other business combination or sells 50% or more of its assets or earning power, the holder of a Right will be entitled to buy, at the exercise price, a number of shares of Common Stock of the acquiring or surviving company having a market value of twice the exercise price of each Right.
Generally, the Rights may be redeemed by the Company for $.025 per Right at any time prior to the expiration of the Rights on November 23, 1997.
On August 22, 1996, the Board of Directors of the Company adopted a Renewed Rights Agreement which will become effective upon the expiration date of the existing Rights Agreement. One new Preferred Stock Purchase Right will be issued for each share of common stock, par value $1.00 per share, of the Company outstanding on the expiration date of the existing Rights Agreement and for each share of common stock issued thereafter.
The Renewed Rights Agreement is substantially identical to the existing Rights Agreement, except that (i) the exercise price per Preferred Stock Purchase Right has been increased from $87.50 to $235, (ii) the redemption price per Right has been reduced from $.025 to $.01, (iii) the amendment provisions have been changed to permit the Company to alter the exercise price of the Rights or to extend the Renewed Rights Agreement's duration beyond its 10-year term, and (iv) each Right will entitle the registered holder to purchase from the Company one one-hundredth of a share of the Company's Series A Participating Preferred Stock. As with the existing Rights agreement, until the Rights become exercisable, expire or are redeemed, they will automatically trade with the common stock but will at no time have voting power.
15.EMPLOYEE RETIREMENT PLANS
The Company has a non-contributory defined benefit pension plan covering substantially all employees of the Company and its subsidiaries in the United States. The benefits provided are based on the employee's age, years of service, and average compensation during the highest three consecutive years of earnings. The Company has made annual contributions at least equal to the amounts accrued for retirement expense. Plan assets are invested primarily in equity securities and corporate bonds.
Employees of subsidiaries outside the United States generally receive retirement benefits from Company-sponsored plans or from statutory plans administered by governmental agencies in other countries.
Net pension expense for domestic operations was $7.5, $6.8 and $6.6 for 1996, 1995 and 1994, respectively. Pension expense for the Company's subsidiaries outside the United States was $2.7, $2.6 and $1.7 for the same periods. In addition, the Company funds two 401(k) savings plans, which collectively cover substantially all employees of the Company and its subsidiaries in the United States, under which basic contributions are made annually up to 2.5% of each eligible employee's annual compensation up to $0.15. Related costs charged to income for the years ended December 31, 1996, 1995 and 1994, were $4.8, $4.6 and $4.8, respectively.
The domestic plan's funded status and amounts recognized in the Company's balance sheet are as follows:
For 1996, the projected benefit obligation was determined using an assumed discount rate of 7.50% (compared with 7.25% in 1995), an assumed long-term rate of return on assets of 9.0%, and an assumed long-term rate of increase in future compensation levels of 4.5%.
The following table details the components of net pension expense for domestic operations:
16.POSTRETIREMENT BENEFITS
The Company provides postretirement health and dental care benefits to eligible employees in the United States, along with their spouses and eligible dependents. Employees become eligible for these benefits if they meet minimum age and service requirements and if they agree to contribute a portion of the cost. The associated plans are unfunded, and approved claims are paid from Company funds. Under the terms of the plans, the Company reserves the right to modify or terminate the plans. Most employees outside the United States are covered by government health care programs. The cost of such programs is not significant to the Company.
The cost to the Company of postretirement benefits consisted of the following components:
The actuarial and recorded liabilities for these benefits were as follows:
For measurement purposes, a 10.2% pre-65 trend rate was used for 1996, decreasing from 11.0% in 1995, with an ultimate rate of 5.0% in 2012. In addition, a 9.7% post-64 trend rate was used for 1996, decreasing from 10% in 1995, with an ultimate rate of 5.0% in 2017. For dental costs, a trend rate of 6.0% was used for 1996, down from 6.5% in 1995, with an ultimate rate of 4.0% in 2000. The discount rate was 7.50% at December 31, 1996, and 7.25% at December 31, 1995. A one-percentage-point increase in the health care trend rate would have increased the accumulated postretirement benefit obligation by $5.7 at year-end 1996 and would have added $0.8 to the benefit cost for the year.
17.INCOME TAXES
The provision for income taxes consisted of the following:
Temporary differences that gave rise to deferred tax assets and liabilities were as follows:
*Foreign Tax Credits are fully offset by valuation allowances because utilization is uncertain. The tax credits expire over the next five years.
A reconciliation of the differences between income taxes computed at the statutory U.S. income tax rate and the consolidated tax provisions is as follows:
*Includes 3.2% in 1995 and 4.1% in 1994 resulting from the non- deductibility of credit losses at the German banking subsidiary.
The foreign tax credit utilization resulted from the Company's election to modify the limitation calculation. U.S. income taxes were not provided at December 31, 1996, on $35.1 of undistributed earnings of foreign subsidiaries, which are expected to be permanently invested in foreign countries, and on $77.8 of undistributed earnings of life insurance subsidiaries accumulated as policyholders' surplus under tax laws in effect prior to 1984. Should these amounts be distributed, the additional income taxes payable would be approximately $1.7 and $27.2, respectively.
18.OTHER REVENUE
19.OTHER EXPENSES
20.STOCK OPTIONS
The Company has a non-qualified stock option plan (Plan), adopted in 1990, which provides for grants of options to officers, directors and key employees of the Company and its participating subsidiaries. Under the Plan, the option price shall not be less than 100% of fair market value on the date the option is granted. Options generally become exercisable in cumulative annual increments of 25% each year, commencing one year after date of grant and expiring after 10 years. The aggregate number of options for any calendar year may not exceed 1.75% of the total issued and outstanding common stock of the Company as measured on the first day of any such calendar year. If during any such calendar year the total number of authorized options is not granted, the remainder will be available for granting during any succeeding year during the term of the Plan. Shares of common stock to be issued upon exercise of options may be treasury shares reacquired by the Company or authorized and unissued common shares or a combination of both.
The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the Plan. Had compensation cost for the Plan been determined based on the fair value at the grant date of awards in 1996 and 1995 consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996, 1995 and 1994, respectively: dividend yield of 3.54%, 4.00% and 4.20%; risk-free interest rate of 5.95%, 5.77% and 7.68%; expected volatility of 28.1%; and expected lives of 5.4 for all years. The pro forma effect on net income for 1996 and 1995 is not representative of the pro forma effect on net income in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1995. The weighted average fair value at the date of grant for options granted during 1996, 1995 and 1994 was $16.21, $13.10 and $9.80 per option, respectively.
The following table summarizes the activity relating to the Plan:
The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable
21.GEOGRAPHIC INFORMATION
Data by geographic area for the years ended December 31 are shown in the following table:
22.DIVIDENDS PAID
23.DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into foreign exchange forward agreements, options and currency swaps to hedge its net investment in foreign subsidiaries. The forward exchange agreements do not subject the Company to risk caused by exchange-rate movements because gains and losses on these agreements offset losses and gains on the assets and liabilities being hedged. The forward exchange agreements generally have maturities that do not exceed six months.
Outstanding forward agreements as of December 31, 1996, consisted of sales of DM38.0 and pounds 46.0 in exchange for US$24.7 and US$71.6, respectively. This compares with forward sales of DM107.0 for US$75.5 at December 31, 1995.
The Company sells at-the-money (spot) call options and buys out- of-the-money (spot) put options on Canadian dollars and British pounds. The strike rate of each call option is set at the then- current exchange rate, and the strike rate of each put option purchased is set at a rate whereby the premium received on the related call option exactly offsets the premium paid for such put option, resulting in no out-of-the-pocket cost. With the exception of the strike rates, all terms of the call and put are identical. The notional amount of each option is an amount that will generally produce offsetting gains or losses (on an aftertax basis) to the gains or losses produced by the underlying net investment. Further, the combination of these instruments (a so- called "no cost collar") is effectively a partial hedge, as hedging gains or losses occur only when the spot rates fluctuate outside the range of the respective strike rates. These option transactions generally have a maturity of three to six months.
At December 31, 1996, the Company had purchased options to deliver British pounds in exchange for US$166.0, as compared to December 31, 1995, when the Company owned the right to deliver British pounds and Canadian dollars for US$391.5. Concurrently, the Company had sold options to buy British pounds for US$166.3 at December 31, 1996, as compared with sales of call options on British pounds and Canadian dollars for US$393.3 at year-end 1995.
Through the use of currency swaps, the Company exchanges principal denominated in U.S. dollars for principal denominated in a foreign currency at the then-current exchange rate and agrees to make the opposite exchanges on the swaps' termination date. Semi-annual interest payments are made on the notional amounts over the life of the agreements.
Currency swaps outstanding at year-end obligate the Company to pay DM47.0 in exchange for US$31.1 in September 1998, to pay C$165.0 in exchange for US$120.4 in July 1999 and to pay C$100.0 in exchange for US$74.5 in November 2000. There were no currency swaps outstanding at December 31, 1995.
The Company recorded unrealized pretax losses of $18.5 at December 31, 1996, and unrealized pretax gains of $1.2 at December 31, 1995, on open hedges. These gains and losses represent a mark to spot on all open hedges and are recognized in a separate component of equity.
There were no gains or losses recognized in net income attributable to the above hedging programs during the three years ended December 31, 1996. Gains and losses in excess of the amount needed to offset gains or losses on investments in foreign subsidiaries due to currency fluctuations are not expected given the above hedging strategy.
The Company and its subsidiaries utilize interest rate swaps to manage interest rate risk. The agreements effectively changed interest rates on certain medium-term notes and other indebtedness issued by the Company and its subsidiaries to variable commercial paper or LIBOR indices or fixed rate, with interest received exactly offsetting interest paid on medium-term notes or other indebtedness. The risks inherent in interest rate swaps are the potential inability of a counterparty to meet the terms of each contract. These agreements to exchange fixed and floating, or floating versus floating, interest rate payments are with major international financial institutions that are expected to fully perform under the terms of the agreements, thereby mitigating credit risk from the transactions.
The amounts to be paid or received under the agreements are accrued in interest expense consistent with the terms of the agreements. At December 31, 1996, accrued interest payable related to these interest rate swaps totaled $15.1, which is offset by $15.6 of accrued interest receivable. The impacts of the interest rate hedging activities on the Company's weighted average borrowing rates and on the reported interest expense were increases as follows: .08% and $9.9 in 1996; .05% and $5.4 in 1995; and .05% and $4.7 in 1994.
The following table summarizes the interest-rate swaps outstanding at December 31, 1996:
*Remaining term in years.
24.CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to finance receivables are limited because the Company's subsidiaries primarily lend to consumers across many different geographic areas. The highest percentage of owned receivables in any geographic area is in California (16%), with no other state or country having more than 9%. About 70% of receivables in California are real estate secured, compared with 41% for the Company in total. Second mortgage loans are generally limited to 75% of the appraised value of the home as determined by certified, independent appraisers. In the case of first mortgages, the lending cap is 80%. In addition, a rigorous discipline of credit approval is enforced regarding borrower debt-to-income ratios and overall consumer credit quality.
In meeting the financing needs of its customers, subsidiaries of the Company issue commitments to extend additional credit to customers under revolving real estate and sales finance contracts as long as there is no violation of any conditions established in the contract. The commitments generally have fixed expiration dates or other termination clauses and generally require payment of a fee. The Company uses the same credit procedures when entering into such commitments as it does for traditional lending products. At December 31, 1996, committed lines totaled $16,289.2, compared with $12,741.2 at year-end 1995, of which 60% at the end of 1996 was available for further loans. A large majority of these commitments expire without being exercised. As a result, total contractual commitments do not represent future credit exposure of liquidity requirements.
25.LEASES
The consumer finance system operates from premises under leases generally having an original term of five years with a renewal option for a like term. The Company leases its headquarters in Wilmington, Delaware, under a lease expiring in 2010. Also, a subsidiary leases an office complex in Peapack, N.J., with a primary term expiring in 2010 and renewal options totaling 47 years. Data processing equipment lease terms range from one to four years and are generally renewable. The minimum rental commitments under noncancelable operating leases at December 31, 1996, were as follows:
26.FAIR VALUE OF FINANCIAL INSTRUMENTS
The information provided below is required by SFAS No. 107, "Disclosures About Fair Value of Financial Instruments." These amounts represent estimates of fair value of financial instruments at a point in time. Significant estimates using available market information and appropriate valuation methodologies were used for the purposes of this disclosure. The estimates are not necessarily indicative of the amounts the Company could realize in a current market exchange, and the use of different market assumptions or methodologies could have a material effect on the estimated fair value amounts.
December 31
The fair value of investment securities is based on quoted market prices. The fair market value of real estate secured and personal unsecured loans was estimated by discounting the future cash flows over the estimated remaining term, based on past cash collection experience. For credit cards and sales finance products, the carrying amount is a reasonable estimate of fair value. The discount factor was determined by taking into consideration current funding costs, chargeoff experience and premiums paid on acquisitions of receivables with similar characteristics.
Demand deposits are shown at their face values. For short-term and long-term debt, the fair values are estimated, using the interest rates currently offered for debt with similar terms and remaining maturities. The estimated fair value of accounts payable approximates their carrying value. The fair value of interest-rate swap agreements, forward exchange contracts and foreign exchange options is the estimated amount the Company would receive or pay to terminate the agreements at the balance sheet date, taking into account current interest rates, foreign exchange rates and the creditworthiness of the counterparties.
The fair value estimates presented were based on information available to the Company at December 31, 1996 and 1995. While management is not aware of any significant factors that would affect the year-end 1996 estimate since that date, current estimates of fair value could differ significantly from the amounts disclosed.
27.CONTINGENT LIABILITIES
In July 1992, the Internal Revenue Service (IRS) completed its examination of the Company's federal income tax returns for 1984 through 1987 and proposed certain adjustments that relate principally to activities of the Company's former subsidiary, American Centennial Insurance Company (ACIC), prior to its sale. The Company sold its entire interest in ACIC in May 1987. The IRS has proposed, among other items, $142.0 in adjustments relating to 1986 and 1987 ACIC additions to loss reserves. In order to limit the further accrual of interest on the proposed adjustments, the Company paid $105.5 of tax and interest during the third quarter of 1992.
Within the administrative appeals process, all but two issues were resolved. Both of the remaining unresolved issues relate to the 1986 and 1987 ACIC additions to loss reserves. During the third quarter of 1996, the IRS issued a statutory Notice of Deficiency asserting the unresolved adjustments and increased the disallowance to $195.0.
The Company's management and independent tax advisers continue to believe that the IRS's proposed adjustments are unlikely to be sustained. The Company fully intends to oppose the adjustments through litigation in the United States Tax Court. While the conclusion of this matter cannot be predicted with certainty, management does not anticipate the ultimate resolution to differ materially from amounts accrued. Resolution is not expected to occur within one year.
The Company is involved in various other claims and lawsuits incidental to its business. In the opinion of management, these claims and suits in the aggregate will not have a material adverse effect on the Company's consolidated financial statements.
BENEFICIAL CORPORATION AND SUBSIDIARIES SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (in millions, except per share amounts)
Item 9.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.
Executive Officers of the Registrant
NOTES (A) Net premiums written and reinsurance assumed. (B) Premiums collected on annuity contracts. (C) Earned premiums. (D) Provision for insurance claims. (E) Claims paid. (F) Finance receivables charged off (after offsetting recoveries) during the period. (G) Change in annuity policy (H) Foreign currency
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. BENEFICIAL CORPORATION
Date: March 18, 1997 By /s/ Andrew C. Halvorsen Andrew C. Halvorsen, Member of the Office of the President, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and the capacities and on the dates indicated.
* Andrew C. Halvorsen, pursuant to Powers of Attorney (executed by each of the directors listed above as signing) filed with the Securities and Exchange Commission, does hereby sign and execute this report on behalf of such directors.
/s/ Andrew C. Halvorsen Andrew C. Halvorsen
March 18, 1997
EXHIBIT INDEX
The Company agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each instrument defining the rights of holders of its long-term debt where the securities authorized thereunder does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis.
The Company will furnish to each stockholder, upon written request, copies of the exhibits referred to above. Requests should be addressed to Scott A. Siebels, Vice President and Corporate Secretary, Beneficial Corporation, 301 North Walnut Street, Wilmington, Delaware 19801.
EXHIBIT 10.12
Employee Benefit Plan Key Plan Plan Document
BENEFICIAL CORPORATION
KEY EMPLOYEES STOCK BONUS PLAN
1. Purposes
The purposes of the Beneficial Corporation Key Employees Stock Bonus Plan are (a) to encourage key employees of the Company and its subsidiaries to continue to devote their best efforts to the business of the Company by rewarding such employees for services which contribute to the success of the enterprise and fostering among them an increased ownership interest in the Company, and (b) to attract persons of outstanding ability to executive positions with the Company and its subsidiaries.
2. Definitions
The terms used in the Plan shall have the following meanings:
(a) "Account" means the account of a Participant as described in Section 5(b) hereof.
(b) "Award" means an award under the Plan made by the Committee pursuant to Section 6 hereof.
(c) "Beneficial" or the "Company" means Beneficial Corporation and any corporate successor thereto.
(d) "Beneficiary" means the person or entity designated by a Participant in writing in a form approved by the Committee to receive a distribution of an Award in case of the death of a Participant prior to the distribution of an Award, provided that such designation is in effect at the time of death of such Participant.
(e) "Board" means the Board of Directors of Beneficial.
(f) "Committee" means the Compensation Committee of the Board or any committee which is a successor thereto.
(g) "Employee" means any person who is employed on a permanent basis by and receives a regular salary from the Company or a Participating Subsidiary, other than a person whose customary employment with such company is less than twenty hours per week.
(h) "Participating Subsidiary" means any Subsidiary that is designated by the Board to participate in the Plan.
(i) "Participant" means any Employee who has received an Award. A person shall remain a Participant until all securities, cash and other property in his Account have been distributed or forfeited under Section 7 hereof.
(j) "Plan" means the Beneficial Corporation Key Employees Stock Bonus Plan as set forth herein and as from time to time amended.
(k) "Stock" means the Common Stock of Beneficial.
(l) "Subsidiary" means any corporation the stock of which possessing at least 80 percent of the total combined voting power of all classes of voting stock and comprising at least 80 percent of the total number of shares of any other class of stock is owned by Beneficial and/or one or more other Subsidiaries.
(m) "Trust" means the trust as described in Section 5(a) hereof.
(n) "Trustee" means the trustee as described in Section 5(a) hereof.
3. Administration of the Plan
(a) The Committee shall have the full power and authority to administer and interpret the Plan. The Committee may from time to time adopt such rules, regulations, forms and agreements, not inconsistent with the provisions of the Plan, as it may deem advisable to carry out the Plan. All Committee determinations with respect to the Plan shall be final, binding and conclusive.
(b) The Committee may, in its discretion, delegate recordkeeping, ministerial and similar administrative duties with respect to the Plan to any person. However, the Committee may not delegate its authority to apply or interpret the provisions of, or make determinations specified in, Sections 4, 6 and 7 hereof.
(c) Committee members shall not be eligible, nor shall they have been eligible at any time within one year prior to their appointment to the Committee, to participate in the Plan or in any other plan of the Company or any of its affiliates under which such member has been eligible for selection on a discretionary basis as a person to whom stock of Beneficial or any of its affiliates, or stock options or stock appreciation rights in respect thereof, may be awarded.
4. Eligibility
To be eligible to receive Awards for any calendar year an Employee shall have been employed at any time during such year by Beneficial or any Participating Subsidiary. An Employee who is eligible to receive an Award for any year may receive an Award for services rendered in such year, even though the Award is made during the following year and the Employee is not eligible to receive an Award for services rendered in such following year.
5. Trust Agreement
(a) Beneficial shall enter into an agreement with a bank or other institutional trustee selected by Beneficial for the purpose of creating an irrevocable trust in which contributions to the Plan shall be held. The Trustee shall at all times have a combined capital and surplus of at least $5,000,000. Any stock, cash or other property held in the Trust that was contributed by Beneficial, other than stock, cash or other property to the extent Beneficial has been reimbursed therefor by a Participating Subsidiary, or that was received with respect to any unreimbursed contribution by Beneficial, shall at all times be subject to the claims of those general creditors of Beneficial whose claims are not satisfied because of the bankruptcy or insolvency of the Company; provided, however, that Beneficial's obligations to pay Awards under this Plan shall be unconditional regardless of the availability of assets held under the Trust. Any Stock, cash or other property, held in the Trust that was contributed, or reimbursed to Beneficial, by any Participating Subsidiary or that was received with respect to any such contribution or reimbursement by the Participating Subsidiary, shall at all times be subject to the claims of those general creditors of such Participating Subsidiary whose claims are not satisfied because of the bankruptcy or insolvency of such Participating Subsidiary; provided, however, that each Participating Subsidiary's obligations to pay Awards under this Plan shall be unconditional regardless of the availability of assets held under the Trust.
(b) The Trustee and/or the Company will create and maintain a separate Account for each Participant. The Trustee shall credit a Participant's Account with (i) the number of shares of Stock awarded to the Participant or purchased with cash awarded to the Participant and any cash remaining after such purchase, (ii) the number of shares of Stock purchased with any cash dividend paid on the Stock held in the Participant's Account and any cash remaining after such purchase, (iii) the number of shares of Stock received as stock dividends or stock splits with respect to the shares of Stock in such Account and (iv) warrants or any other property received with respect to the Stock in such Account. The Trustee shall debit a Participant's Account to reflect any distributions or forfeitures with respect to the Participant under Section 7 below. Stock that is contributed to the Plan for any year and Stock that is purchased by the Trustee with the contributions of the Company or a Participating Subsidiary for such year shall each be separately allocated to the Accounts of the Participants on a pro-rata basis based on the Participant's respective Awards for such year. Any Trust assets distributed by the Trustee to the general creditors in bankruptcy or insolvency of Beneficial or any Participating Subsidiary shall be debited to the Accounts of the Participants on a pro-rata basis based on the value of the Participants' respective Accounts that is attributable to contributions made by such corporation at the time of such distribution.
(c) The Trustee and/or the Company shall maintain records for each Account showing (i) the aggregate number of shares of Stock so credited and debited, (ii) the number of shares of Stock which are awarded or purchased for each calendar year during which the Plan is in effect, (iii) the Account investments apart from such shares of stock, (iv) the Account balance, and (v) such other matters as the Trustee and/or the Company may deem necessary or advisable.
(d) No fractional share shall be purchased for or credited to the Account of any Participant.
(e) Unless otherwise provided by Beneficial, the Trustee shall have custody of the certificate or certificates representing all the shares of Stock held in the Trust under the Plan. The Trustee shall register such certificate or certificates in its own name or in the name of a nominee of the Trustee.
(f) The power of Beneficial to determine the period during which any person shall serve as Trustee and the power to remove any such person at any time shall be exercised by Beneficial in accordance with the directions of the Committee. Subject to the provisions of the Plan, the agreement with the Trustee shall contain such other provisions as Beneficial shall deem appropriate.
6. Annual Awards
Awards will be made on the following basis:
(a) At each November meeting of the Board in a calendar year during which the Plan is in effect, the Board shall make a preliminary determination regarding the maximum percentage of the consolidated net after-tax income, if any, of the Company and its Subsidiaries for that year which may, in the Committee's discretion, be contributed to the Plan for such year and at the meeting of the Board held the following February shall make a final determination regarding such maximum percentage. The maximum percentage for any such year shall not exceed 5% of the net after-tax income, if any, of the Company and its Subsidiaries for such year, computed on a consolidated basis in accordance with generally accepted accounting principles; provided, however, that for the purpose of calculating such net income, there shall not be taken into account (i) the after-tax cost to the Company of the contribution to the Plan for such year, and (ii) extraordinary or unusual nonrecurring items that are realized otherwise than in the ordinary course of trade or business as determined by the Committee (e.g. gains or losses resulting from the sale of a Subsidiary). The Board shall also determine, at its February meeting referred to above in this paragraph (a), whether the contribution shall be in cash or Stock or partly in cash and partly in Stock, in which case the Board shall specify the percentage to be contributed in cash and Stock, respectively.
(b) As soon as practicable following the public announcement of the Company's consolidated financial results for each calendar year during which the Plan is in effect, the Committee shall determine (i) the dollar amount of the contribution to the Plan for such calendar year, subject to the maximum percentage of net after-tax income determined by the Board pursuant to the provisions of paragraph (a) of this Section 6; (ii) which Employees from among those eligible shall receive an Award for such year; and (iii) the portion of the annual contribution for such year that is allocable to each Participant. The Committee shall determine the amount of each Award based on the performance of each eligible Employee and such other factors as it may determine to be appropriate. Upon the request of the Committee the Executive Committee of the Board shall furnish to it such information regarding the performance of eligible Employees as the Committee shall deem necessary and appropriate.
(c) If after the determinations set forth in paragraph (b) of this Section 6 have been made, but within the same calendar year, the Committee determines in its discretion that additional Awards are appropriate to Employees included among those determined at Section 6(b)(ii) above, based solely upon such Employees' exceptional performance during the calendar year for which the Award is made, it may grant such Awards subject to the maximum percentage of net after-tax income determined by the Board pursuant to the provisions of paragraph (a) of this Section 6. Such additional awards are to be granted only in unusual circumstances where information regarding Employees' performance was not available or fully measurable when the determinations set forth in paragraph (b) of this Section 6 were made.
(d) As soon as practicable after the Awards pursuant to paragraphs (b) and (c) of this Section 6 are determined, Beneficial shall transfer the corresponding contributions to the Trustee. The contributions shall be made, in whole or in part, as determined by the Board pursuant to the provisions of paragraph (a) of this Section 6, in cash or Stock, which Stock shall consist of treasury shares (whether or not acquired for purposes of the Plan). The value of any Stock contribution shall be determined by the Committee based on the mean between the high and the low price for a share of Stock on the New York Stock Exchange (consolidated trading) on the last day for which price quotes are available preceding the date on which such contribution is transferred to the Trustee.
(e) As soon as practicable after the Trustee receives (i) any cash awarded to a Participant or (ii) any cash dividend paid on Stock held in a Participant's Account, the Trustee shall use such cash (and any other cash then in the Participant's Account) to buy in one or more transactions the largest practicable whole number of shares of Stock for such Account (which may include purchases of Stock executed on a national securities exchange) after deductions for the payment of brokers' fees and stock transfer and similar taxes, if any, applicable to such purchases. The Trustee shall limit the daily volume and prices of such purchases as required by regulations of the Securities and Exchange Commission, if applicable, and otherwise to the extent it deems necessary or advisable.
(f) Upon (i) the distribution of Stock, cash or other property from the Account of a Participant who was an Employee of a Participating Subsidiary during the year for which the Award was made to which such Stock, cash or other property relates, or (ii) the payment of such Stock, cash or other property by Beneficial directly to a Participant pursuant to Section 7(h) hereof, such Participating Subsidiary shall pay to the Company an amount equal to the fair market value of such Stock, cash or other property as of the date of such distribution or payment. The determination of such fair market value shall be made by the Committee and, with respect to Stock, shall be based on the mean between the high and the low price of a share of Stock on the New York Stock Exchange (consolidated trading) on the last day for which price quotes are available preceding the date of such distribution or payment.
7. Vesting and Payment of Awards
(a) Except as provided in Section 7(b) hereof, Stock in a Participant's Account shall vest in the Participant at the earliest to occur of the following:
(i) January 1 of the 5th calendar year following the year for which such Stock was awarded; or
(ii) the date on which the Participant ceases to be employed by the Company or a Subsidiary, if such termination of employment is on account of death, total disability, a discharge at the direction of the Company or a Subsidiary (other than a discharge for cause) or a termination of employment under circumstances which would entitle the Participant to a continuation of compensation and benefits for a period of time following such termination pursuant to the terms of an agreement entered into between the Participant and the Company or a Subsidiary providing for such a continuation in limited instances following a change in control of the Company (as defined in or as otherwise construed for purposes of such agreement). For purposes of the foregoing, a total disability shall be defined in accordance with Section 10.03 (or any successor provision) of Beneficial's Retirement Plan and a "discharge for cause" shall be defined in accordance with Section 8.04 (or any successor provision) of such Plan.
(b) Distributions of Stock (whether through a Stock split or Stock dividend) or other property on Stock in a Participant's Account, and Stock purchased with any cash dividend paid on Stock in his Account, shall vest in the Participant as of the date the Stock with respect to which the cash, Stock or other property was received vests under Section 7(a) or 7(d) hereof.
(c) If a Participant ceases to be employed by the Company or a Subsidiary other than (i) as provided in clause (ii) of Section 7(a) above, or (ii) by reason of retirement on or after January 1 of the calendar year in which the Participant attains age 60 at a time when the Participant is eligible to retire early pursuant to Section 4 of the Beneficial Corporation Pension Plan dated October 1, 1983, as amended, and before Stock is vested under clause (i) of Section 7(a) above or Section 7(b) hereof, as the case may be, the Participant shall thereupon forfeit his interest in such Stock and in any cash or property then in his Account that was received with respect to such Stock. Any Stock, cash or property forfeited hereunder shall be returned to the Company.
(d) Any Award made prior to November 12, 1992, if not already vested under Section 7(a) hereof, and if not previously forfeited under Section 7(c) hereof, shall vest in the Participant on January 1 of the calendar year in which the Participant attains age 60.
(e) Except as provided in Section 7(f) below, as soon practicable after a Participant acquires a vested interest in any of the shares of Stock or other property held in his Account, the Trustee shall distribute the same to the Participant. Distribution shall be made to the Participant or, if deceased, to his surviving Beneficiary or Beneficiaries or to his estate if he has not named a Beneficiary who has survived him.
(f) A Participant may elect to defer receipt of all, but not a portion, of any interest in his Account in which he will become vested during a particular calendar year, until a specific date following the date such interest will become vested, but not for a period extending beyond the fifth anniversary of such date. An election to defer the receipt of an Award, and any distributions in respect of such an Award, or any Stock purchased with cash dividends paid on such an Award, must be made in the year prior to the year to which such Award relates. The election shall be made in writing, shall be irrevocable, and shall be in such form as the Committee may designate.
(g) Beneficial and/or a Participating Subsidiary may impose such requirements for the payment of withholding or other taxes in connection with the distribution of any Stock, cash or other property in a Participant's Account as such corporation shall determine to be necessary or appropriate prior to any distribution.
(h) In the event that Stock, cash or other property in a Participant's Account is withdrawn therefrom solely to satisfy, in whole or in part, claims of a judgment creditor of Beneficial against such corporation, Beneficial shall be obligated to ensure that such Participant shall nevertheless receive an equivalent amount of Stock, cash and/or other property, if any, that he would have received, and at the time or times at which such receipt would have occurred hereunder, had there been no such withdrawal of assets. At the option of Beneficial, such obligations may be discharged by the making of a further contribution of the requisite amount and type of assets to such Participant's Account in substitution for the assets so withdrawn, or by payment from Beneficial directly to such Participant.
(i) Each Participant shall be entitled to designate one or more persons or entities to be a Beneficiary or Beneficiaries hereunder, and to revoke or otherwise change at any time any such designation. No such designation, revocation or change shall be effective until received by the Committee on a form which it has approved for such purpose.
(j) Notwithstanding anything herein to the contrary, if for any calendar year which ends on or after December 31, 1997 a Participant is classified as a "Covered Employee" for purposes of Section 162(m) of the Internal Revenue Code of 1986 (or the corresponding provisions of any future U.S. internal revenue law) (the "Code"), then the awards, if any, which may be made pursuant to the Plan to such Participant with respect to such Participant's performance during 1993 or subsequent years, in accordance with the provisions of Section 6, and credited pursuant to Section 5 (b)(i) of the Plan to such Participant on or after February 1, 1994 (and not previously distributed), together with any shares of stock or other rights credited pursuant to Section 5 (b)(ii), (iii) or (iv) of the Plan with respect to such awards (the "Award" or collectively "Awards"), shall, notwithstanding Section 7 (e) of the Plan not be distributable to such Participant, though earlier vested pursuant to Section 7(a) of the Plan, prior to the earliest to occur of the following:
(i) the first business day of the calendar year following the year in which such Participant's employment with the Corporation shall have terminated for any reason, or
(ii) the last business day of any calendar year ending on or after December 31, 1998 in which such Participant shall not be so classified as a "Covered Employee", or
(iii) the last business day of any calendar year ending on or after December 31, 1998 in which such Participant's "applicable employee remuneration", computed pursuant to Section 162(m)(4) of the Code without regard to the Awards, shall not exceed $1,000,000,
provided, however, that if termination of employment pursuant to subparagraph (i) above is under circumstances which would entitle the Participant to continuation of compensation and benefits following a change of control within the meaning of Section 7 (a)(ii) of the Plan, such distribution shall occur as soon as practicable after such termination, and provided further that the portion of any Award or Awards which shall become distributable in any particular year pursuant to subparagraph (iii) above shall be limited to an amount sufficient to cause the Participant's "applicable employee remuneration" for such year to equal (but not exceed) $1,000,000 (such Awards to be distributed in the order awarded, with the full amount of any earlier-granted Award distributed prior to any distribution with respect to a later-granted Award). Any shares of stock or other rights credited pursuant to Section 5 (b) (i), (ii), (iii) or (iv) of the Plan with respect to such Awards shall remain, until distributed to such Participants, held as assets of the trust created pursuant to Section 5 (a) of the Plan and in accordance with Section 5 (e) of the Plan, and shall in all respects remain fully subject to the claims of those general creditors of the Corporation or its Participating Subsidiaries whose claims are not satisfied because of the bankruptcy or insolvency of the Corporation or Participating Subsidiaries pursuant to such Section 5(a) of the Plan. Any such Awards shall otherwise be administered in accordance with the provisions of the Plan, including without limitation the vesting and forfeiture provisions of Section 7 of the Plan, and the voting and offer to purchase provisions of Section 8 of the Plan.
8. Voting Rights; Offer to Purchase Stock
Each Participant shall have the right and shall be afforded the opportunity to instruct the Trustee how to vote the shares of Stock held in his Account. The Trustee shall vote any shares of Stock for which it does not receive instructions in the same proportions on each matter to be voted upon as the shares for which the Trustee does receive instructions. In the event any offer is made to shareholders of the Company generally by any person, corporation or other entity (the "Offeror") to purchase any or all of the Company's outstanding Stock, including the Stock then held in Participants' Accounts, then and in that event the Trustee shall promptly forward to each Participant all materials and written information furnished to the Trustee by the Offeror and/or by the Company in connection therewith, and shall notify each Participant in writing of the number of shares of Stock which is then credited to such Participant's Account. Such notice shall also set forth the rights afforded each Participant by the following sentence and shall state that, absent timely instructions from such Participant to the Trustee, no tender to the Offeror shall be made of any of the shares specified in such written notice. Each Participant shall be entitled to confidentially instruct the Trustee as to whether all (but not less than all) of the shares of Stock standing to his credit should be tendered by the Trustee pursuant to such offer. The Trustee shall tender only those shares of Stock held in a Participant's Account for which it receives instructions to so tender from such Participant, and shall not tender any shares as to which such instructions are not so received. In the event that Stock held in a Participant's Account is tendered pursuant to this section, the proceeds received upon the acceptance of such tender by the Offeror shall be credited to such Participant's Account (and shall be subject to the same terms and conditions as were applicable to the Stock so tendered). Pending the distribution of such proceeds pursuant to Section 7 hereof, the Trustee shall invest any cash portion of such proceeds in such short-term or intermediate-term obligations issued or guaranteed by the Government of the United States or any agency or instrumentality thereof, and in such commercial paper (other than obligations of the Company), certificates of deposit and other investments of a short-term or intermediate-term nature, as the Trustee, in its discretion, deems suitable for the investment of trust funds.
9. Non-alienation of Benefits
No right, benefit or payment under the Plan shall be subject to anticipation, sale, assignment, pledge, encumbrance, or charge by any Participant or any Beneficiary thereof. Any attempt by a Participant or such Beneficiary to anticipate, sell, assign, pledge, encumber, or charge the same shall be void. If any Participant or Beneficiary hereunder should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any right or benefit or payment hereunder, then such right, benefit or payment, in the sole discretion of the Committee, shall be forfeited. In the absence of a designated Beneficiary, the right of a Participant to receive a distribution hereunder shall be transferable only by will or the laws of descent and distribution.
10. Effective Date of Plan
The Plan shall become effective for the calendar year ending on December 31, 1982, subject to approval, in accordance with Beneficial's By-laws, of the holders of the outstanding shares of the capital stock of Beneficial having ordinary voting power for the election of directors of Beneficial, other than stock having such power only by reason of the happening of a contingency, and the receipt of any governmental approvals or rulings which the Company determines to be appropriate.
11. Amendment of Termination of the Plan
(a) The Board may amend, suspend or terminate any or all of the provisions of the Plan at any time, except that, without prior approval, in accordance with Beneficial's By- laws, of the holders of the outstanding shares of the capital stock of Beneficial having ordinary voting power for the election of directors of Beneficial, other than stock having such power only by reason of the happening of a contingency, no amendment may be made that will (i) increase the maximum amount that may be contributed to the Plan for any year under Section 6(a) hereof, or (ii) accelerate in any way the vesting requirements, or change the forfeiture provisions, under Section 7 above.
(b) Any amendment, suspension or termination of the Plan shall not adversely affect the rights of Participants to Awards theretofore made, except to the extent, if any, required to obtain governmental approvals or rulings which the Company determines to be appropriate.
05/18/88 - Stockholder approval of Key Employees Stock Bonus Plan
05/19/88 - Board of Directors approved provision for confidential voting
02/08/89 - Board of Directors authorized changes to 6(a) and 6(c) re-timing of setting percentages.
11/12/92 - Board of Directors authorizes changes to Section 6(c) and Section 7 removing acceleration of vesting at age 60 provisions.
02/01/94 - Adopted as of 2/01/94. Amended to restrict certain 1993 awards to senior executives as to date first eligible for distribution.
03/21/94 - Amended to restrict 1994 and subsequent awards to senior executives as to date first eligible for distribution.
EXHIBIT 10.13
BENEFICIAL CORPORATION
1990 NON-QUALIFIED STOCK OPTION PLAN
1. Purpose of Plan. The purpose of the Beneficial Corporation 1990 Non-Qualified Stock Option Plan ("Plan") is to attract and retain able and experienced key management employees and directors and to provide an incentive to those persons to improve operations and increase profits by affording them an opportunity to acquire stock ownership in Beneficial Corporation ("Corporation"). The options granted under the Plan are not intended to comply with Section 422A of the Internal Revenue Code of 1986, as amended (the "Code").
2. Administration of Plan. This Plan shall be administered by the Compensation Committee ("Committee") of the Board of Directors of the Corporation ("Board") which shall consist of not less than three members of the Board, none of whom shall be eligible to participate in this Plan, other than pursuant to Section 8 hereof, for a period of at least one year prior to appointment. The determinations of the Committee shall be made in accordance with their judgments as to the best interests of the Corporation and its stockholders and in accordance with the purposes of the Plan. A majority of members of the Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee if in writing signed by all of the Committee members. No member of the Committee or the Board shall be liable for any action taken or determination made in good faith with respect to this Plan or any option ranted hereunder.
The Committee shall have full authority and discretion to (a) determine, consistent with the provisions of this Plan, the employees to be granted options, the times at which options shall be granted, the number of shares subject to each option, the period during which each option becomes exercisable (subject to Section 7 hereof), and the terms contained in each option agreement, and (b) adopt rules and regulations and prescribe or approve any forms or documents to carry out the purposes and provisions of this Plan. Notwithstanding the foregoing, the number of shares subject to option which may be granted to any employee, regardless of position or title, during any calendar year under this Plan may not exceed 200,000, provided that such limitation shall be subject to adjustment consistent with the provisions of Section 12 hereof with respect to any change in the Common Stock of the Corporation which shall occur on or after November 21, 1996. The Committee's interpretation and construction of any provisions of this Plan or determination of any grant hereunder shall be binding and conclusive, except as such may be otherwise modified, amended or changed by the Board. The authority of the Board under this Section shall not be exercised in any manner which could jeopardize the status of the Committee as disinterested administrator of the Plan.
3. Eligibility. The class of employees eligible to participate in this Plan shall consist of those headquarters employees holding the title of Assistant Vice President or above, or the equivalent of that position in function and responsibility in the case of subsidiaries of the Corporation, and those employees in the Corporation's field operations holding the title of Director and above. An employee who has been granted an option may be granted an additional option or options under this Plan if the Committee shall so determine. The granting of an option under this Plan shall not affect any outstanding stock option previously granted to an optionee under this Plan. The term "subsidiary" shall mean any domestic or foreign corporation of which the Corporation owns, directly or indirectly, in excess of 50% of the total combined voting power of all classes of stock of such corporation. Notwithstanding any language of this Section to the contrary, no individual shall be eligible to receive an option as an employee of the Corporation or any of its subsidiaries for a period of one year after having been eligible to receive options pursuant to Section 8 hereof. Those eligible shall include individuals who are subject to the personal income tax laws of foreign countries, including Canada, the United Kingdom, and the German Federal Republic, and employed by the Corporation or any of its subsidiaries, and the Committee shall have the discretion, but shall not be required, to include as a part of the terms of each option agreement provisions and conditions consistent with the Plan, intended to comply with the applicable requirements of the internal revenue laws of such foreign countries.
4. Shares Subject to Plan. Subject to adjustment as provided in Section 12, the aggregate number of shares which shall be authorized to be issued pursuant to options granted by the Committee under this Plan for any calendar year shall not exceed that number of shares equal to one and three-quarter percent (.0175) of the total issued and outstanding Common Stock of the Corporation, par value $1.00 per share, as measured on the first day of any such calendar year, which may be treasury shares reacquired by the Corporation or authorized and unissued shares or a combination of both. If during any such calendar year options for less than the total number of shares so authorized are granted under the Plan, the balance of such shares shall be available for the granting of options during any succeeding year. Any shares subject to an option under this Plan which shall expire or be terminated for any reason shall be available for the granting of options in that, or any succeeding year during the term of this Plan.
5. Option Price. The option price per share under each option granted by the Committee shall be not less than 100% of the fair market value per share on the date an option is granted, but in no event less than the par value thereof. The fair market value shall be the average between the highest and lowest quoted selling price per share on the New York Stock Exchange Composite Transactions Tape "Composite Tape") on the date the option is granted (subject to adjustment under Section 12 hereof). If there should be no sale of the shares reported on such date, then the option price per share shall be the average between the highest and lowest quoted selling price per share reported on the Composite Tape on the next preceding day on which there shall have been a sale.
6. Exercise of Option.
(a) Each Option granted under the Plan shall be exercisable on the dates and for the number of shares as shall be provided in a stock option agreement between the Corporation and optionee evidencing the option granted by the Committee and the terms thereof. Shares shall be issued to the optionee upon payment in full either in cash or by an exchange of shares of Common Stock of the Corporation previously owned by the optionee for at least six months prior to the date of exercise, or a combination of both, in an amount or having a combined value equal to the aggregate purchase price for the shares subject to the option or portion thereof being exercised. The value of the previously owned shares of Common Stock exchanged in full or partial payment for the shares purchased upon the exercise of an option shall be equal to the aggregate fair market value, as defined in Section 5, of such shares on the date of the exercise of such options.
(b) The Corporation shall be entitled to withhold the amount of any tax attributable to any amounts payable or shares deliverable under the Plan after giving the person entitled to receive the payment or delivery (or the person liable for the tax, if different) notice as far in advance as practicable, and the Corporation may defer making payment or delivery of any benefits under the Plan if any tax is payable until indemnified to its satisfaction. The Committee may, in its discretion and subject to rules which it may adopt, permit an optionee to pay all or a portion of all taxes arising in connection with the exercise of an option by electing to (i) have the Corporation withhold shares of Common Stock, or (ii) deliver other shares of Common Stock previously owned by the optionee for at least six months having a fair market value (as defined in Section 5) equal to the amount to be withheld provided, however, that the amount to be withheld shall not exceed the optionee's estimated total Federal, State and local tax obligations associated with the transaction. The fair market value of fractional shares remaining after payment of the withholding taxes shall be paid to the optionee in cash.
7. Term of Option. Options granted under the Plan shall become exercisable at such intervals or dates and over such period of time ("Exercise Period") and for such number of shares which may be purchased at any one time as shall be determined by the Committee (collectively "Option Terms") to be set forth in the stock option agreements between individual optionees and the Corporation under the Plan ("Option Agreements"), but in no event shall the Exercise Period commence prior to one year after the date of grant (except as permitted in Sections 11(c) and 10(e) hereof) or extend more than 10 years after the date of grant. The Committee may, consistent with Section 13 hereof, authorize existing Option Agreements to be amended to provide for different Option Terms, in whole or in part, including an amendment to permit transferability in accordance with Section 9 hereof. Options which are not exercised prior to the end of the Exercise Period shall expire, and the shares subject to such options shall become available for the granting of other options under the Plan during that or any succeeding year.
8. Grants to Outside Directors.
(a) On the 15th day of the month of December of each year prior to the termination of this Plan, each member of the Board of Directors of the Corporation (excluding Emeritus Directors) who is not then an employee of the Corporation or any of its subsidiaries ("Outside Director") shall automatically be issued an option pursuant to this Plan to purchase 4000 shares of the Common Stock of the Corporation, provided, however, that such number of shares shall be automatically proportionately adjusted upon the occurrence of any event described in Section 12 hereof, in a manner consistent with any adjustment affected pursuant to that Section. In the event that December 15 shall in any year fall on a day on which the New York Stock Exchange is not open for trading, options shall instead be issued pursuant to this Section on the next preceding trading day.
(b) Such options shall be granted at an option price equal to the fair market value per share (as defined at Section 5) on the date of grant, shall be exercisable at any time after one year following the date of grant and prior to ten years following the date of grant, and shall be subject to the restrictions on transferability provided in Section 9(a) hereof.
(c) If for any reason during the term of an unexercised and unexpired option issued pursuant to this Section, the optionee shall cease to be a voting member of the Board of Directors of the Corporation, the option may be exercised at any time during its normal exercise period, provided however, that any option not exercisable on the date of such cessation shall expire on such date.
(d) Options issued pursuant to this Section shall be subject to adjustment pursuant to Section 12 hereof.
(e) Notwithstanding any provisions of this Section to the contrary, no Outside Director of the Corporation shall be eligible to receive any option pursuant to the Plan for a period of one year after having been eligible to receive options pursuant to the Plan as an employee of the Corporation or any of its subsidiaries.
(f) The provisions of this Section 8 may be amended by the Board from time to time, affecting the issuance date, number of shares under option, and terms of options issued to Outside Directors hereunder.
9. Transferability of Options.
Options or LSAR's granted under this Plan shall be transferable by the optionee by will or the laws of descent and distribution, and shall also be transferable by the optionee to (i) the spouse, siblings, parents and lineal descendants of the optionee ("Immediate Family Members"), (ii) organizations described at Section 501(c)(3) of the Code ("Charities"), (iii) a trust or trusts for the exclusive benefit of such Immediate Family Members or Charities, or (iv) a partnership or partnerships in which such Immediate Family Members are the only partners, provided that (A) there may be no consideration for any such transfer, (B) the stock option agreement pursuant to which options were granted under this Plan must expressly provide for transferability in a manner consistent with this Section 9, (C) subsequent transfers of transferred options shall be prohibited except those pursuant to will or the laws of descent and distribution, and (D) any such transfer must expressly provide that the optionee is designated as agent of the transferee for purposes of notices from the Plan or the Committee with respect to the options, and for purposes of any notices to the Plan or the Committee from the transferee with respect to the options, including but not limited to notices of intent to exercise. Following transfer, any such options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Sections 6 and 13 hereof the term "optionee" shall be deemed to refer to the transferee. The events of termination of employment of Section 10 hereof shall continue to be applied with respect to the original optionee, following which the options shall be exercisable by the transferee only to the extent, and for the periods specified at Sections 10(b), 10(c), 10(d) and 10(e). Absent a transfer in accordance with the provisions of this Section 9, options or LSAR's granted under the Plan shall be exercisable during the optionee's lifetime only by the optionee (or the legal representative of the optionee under Section 10(c)).
10. Termination of Employment and Death of Optionee.
(a) If during the term of an unexercised option the optionee terminates employment with the Corporation or any of its subsidiaries for any reason (other than those specified at (b) through (e) of this Section) the option shall expire and cease to be exercisable immediately upon such termination.
(b) If during the term of an unexercised option employment with the corporation or any of its subsidiaries is terminated by reason of the death of such optionee, the option may be exercised within a two year period following the date of death to the extent that such option is exercisable at the date of death, but in no event later than the Exercise Period specified in the Option Agreement by which such option was granted. The option shall be exercisable during such period by the optionee's estate or by any person who acquires the right to exercise the option by reason of the optionee's death.
(c) If during the term of an unexercised option employment with the Corporation or any of its subsidiaries is terminated by reason of the "long term disability" of the optionee, as such term is defined for purposes of the Long Term Disability Benefits Plan maintained by the Corporation, the option may be exercised, to the extent that it was exercisable at termination, at any time during the Exercise Period specified in the Option Agreement by which such option was granted. The optionee's legal representative, if appointed, shall be entitled to exercise the option
(d) If during the term of an unexercised option employment with the Corporation or any of its subsidiaries is terminated by reason of retirement at any time following the date the optionee is eligible to retire early pursuant to Section 4 of the Beneficial Corporation Pension Plan dated October 1, 1983, as amended ("Pension Plan") the option may be exercised at any time during the three month period following his or her Early Retirement Date (as defined in the Pension Plan), to the extent that such option is exercisable on such Early Retirement Date, but in no event later than the Exercise Period specified in the Option Agreement by which such option was granted.
(e) If during the term of an unexercised option employment with the Corporation or any of its subsidiaries is terminated by reason of retirement at any time following the date the optionee is eligible to retire early, as defined at 10(d) above, and after the date on which such optionee attains the age of sixty two years, the option shall be exercisable at any time during the Exercise Period specified in the Option Agreement by which such option was granted. Notwithstanding the provisions of Section 7 hereof and the terms of each Option Agreement, all options held at retirement, then unexercised and unexpired, by any optionee whose employment is terminated as provided for in this Section 10(e) shall become immediately exercisable upon the later to occur of (i) the optionee's retirement date, or (ii) the expiration of a period of six months following the date of grant of any affected option.
(f) The portion of any option subject to this Section 10 which is not exercisable at the beginning of, or exercised within the periods permitted by paragraphs (b) through (e) above shall lapse, and the shares subject to such option shall become available for the granting of other options under this Plan during that or any succeeding year.
11. Change of Control.
(a) Qualifying Event. The occurrence of a "Change in Control of the Corporation", as that term is defined herein, shall constitute a "Qualifying Event" for purposes of the Plan. A "Change in Control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A (or the corresponding provision of any future schedule of required proxy statement information) of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is then subject to such reporting requirement; provided, that, without limitation, such a change in control shall be deemed to have occurred if:
(i) the Corporation shall cease to be a publicly owned corporation having at least 1000 stockholders; or
(ii) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing fifteen percent (15%) or more of the combined voting power of the Corporation's then outstanding securities; or
(iii) during any period of two (2) consecutive years (not including any period prior to the adoption of this Plan) there shall cease to be a majority of the Board comprised as follows: individuals who at the beginning of such period constitute the Board and any new director(s) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved.
(b) Limited Stock Appreciation Rights. Upon the occurrence of a Qualifying Event, there shall automatically be issued in connection with all options granted pursuant to the Plan, then unexercised and unexpired, to persons at such time subject to restrictions on purchase and sale of the Common Stock of the Corporation under Section 16(b) of the Exchange Act, Limited Stock Appreciation Rights ("LSAR"), as hereinafter defined. The number of shares subject to each LSAR shall be the same as that for the underlying option to which such LSAR relates. For purposes of the Plan an LSAR shall represent the privilege to receive from the Corporation (without payment to the Corporation except for applicable withholding taxes) upon exercise of such LSAR a payment solely in cash equal to the "Option Spread". The "Option Spread" shall be (i) the difference between the highest fair market value per share (as defined in Section 5) during the 90-day period beginning on the day of the Qualifying Event and the per share option price of the related option, times (ii) the number of shares subject to the LSAR. An LSAR shall be exercisable in whole or in part at any time during the 30 day period following the expiration of six months after the date of the Qualifying Event, upon notice to the Corporation in the manner prescribed by the Committee. Notwithstanding Section 10(a) hereof, options or LSAR's granted hereunder shall remain exercisable during such six month and 30 day periods, if within the Exercise Period. Upon the exercise of an LSAR, the related option granted pursuant to the Plan shall cease to be exercisable to the extent of the shares of Common Stock with respect to which such LSAR is exercised. Upon the exercise or termination of a related option, the LSAR with respect to such related option shall terminate to the extent of the shares of Common Stock with respect to which the related option was exercised or terminated.
(c) Acceleration of Vesting. Notwithstanding the provisions of Section 7 hereof and the terms of each stock option agreement, upon the occurrence of any Qualifying Event all options granted under the Plan, then unexercised and unexpired, shall be immediately exercisable.
12. Adjustment Provisions. In the event of any change in the Common Stock of the Corporation, $1.00 par value, by reason of any stock dividend, recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares, extraordinary dividend, or of any similar change affecting such Common Stock, then in any such event the number and kind of shares subject to options granted pursuant to the Plan and their purchase price per share shall be appropriately adjusted consistent with such change in such manner as the Committee of the Plan may deem equitable to prevent substantial dilution or enlargement of the rights granted pursuant to any option agreement issued hereunder. Any adjustments so made shall be final and binding upon all parties.
13. Duration, Amendment and Termination. This Plan is intended to be perpetual and shall have no stated termination date. The Board of Directors may amend the Plan from time to time or terminate the Plan at any time. However, no action or amendment authorized by this Section or Section 7 shall reduce the amount of any existing benefits or change the terms and conditions thereof without the optionee's consent.
To the extent then required by Rule 16(b)(3), as promulgated by the Securities and Exchange Commission, approval of the stockholders of the Corporation shall be required for any amendment to the Plan which shall (a) materially increase the total number of shares which may be issued under the Plan; (b) materially reduce the minimum purchase price of shares of Common Stock which may be made subject to options under the Plan, or (c) materially modify the requirements as to eligibility for options under the Plan.
By mutual agreement between the Corporation and an optionee hereunder or under any other stock option plan of the Corporation, options or rights may be granted to the optionee in substitution and exchange for, and in cancellation of, any benefits previously granted to the optionee under this Plan or any other stock option plan of the Corporation.
14. Compliance With Law. This Plan, all options issued hereunder, and the obligation of the Corporation to sell and deliver shares of Common Stock hereunder, shall be subject to all applicable Federal and State laws, rules and regulations and to such approvals by any governmental or regulatory agency as may be required.
15. No Rights as Stockholder. Individuals granted options pursuant to the Plan and transferees shall have no rights as stockholders with respect to any shares of Common Stock subject to such options prior to the date of issuance to them of certificates for such shares. Other than pursuant to Section 12 hereof no adjustment shall be made for dividends or distributions or other rights with respect to such shares for which the record date is prior to the date on which they shall become the holder of record thereof.
16. Stockholder Approval. The Plan was adopted by the Board of Directors on November 15, 1990, subject to stockholder approval. The Plan was approved by the stockholders of the Corporation on May 22, 1991.
EXHIBIT 11
BENEFICIAL CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (in millions, except per share amounts) Years Ended December 31
* This calculation is submitted in accordance with Regulation S- K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%.
EXHIBIT 12
BENEFICIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES (Continuing Operations Only)
Years Ended December 31
In computing the ratio of earnings to fixed charges, earnings consist of net income to which has been added income taxes and fixed charges. Fixed charges consist principally of interest on all indebtedness and that portion of rentals considered to represent an appropriate interest factor. Preferred dividend requirements are grossed up to their pretax equivalent.
EXHIBIT 21
LIST OF BENEFICIAL CORPORATION SUBSIDIARIES 01/06/97 COMPRISING THE FINANCE DIVISION
* Minutes of company kept at this address ** Remaining shares are Directors' qualifying shares *** Remaining shares are owned by Beneficial Corporation
01/06/97