Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
Heller Financial, Inc. (the "Company") was incorporated in 1919 under the laws of the State of Delaware and is engaged in various aspects of the commercial finance business. The Company and its consolidated subsidiaries employ approximately 1,400 people. The executive offices are located at 500 West Monroe Street, Chicago, Illinois 60661 (telephone: (312) 441-7000). Unless the context indicates otherwise, references to the Company include Heller Financial, Inc. and its consolidated subsidiaries.
The Company operates in the middle market segment of the commercial finance industry, which generally includes entities in the manufacturing and service sectors with annual sales in the range of $15 million to $200 million and in the real estate sector with property values generally in the range of $5 million to $40 million. The Company currently provides services in six product categories: (1) corporate finance, (2) real estate finance, (3) asset based finance, (4) current asset management, (5) specialized commercial finance and investments and (6) international factoring and asset based finance.
The Company is continuing the program begun in 1990 to diversify its portfolio and earnings sources, strengthen earnings quality, improve asset quality and maintain its capital strength. The Company is diversifying its portfolio and earnings sources by reducing reliance on the corporate finance business and growing the asset based and international businesses. Earnings quality is being strengthened by developing more stable earning streams, reducing the level and volatility of credit quality costs and increasing productivity. Asset quality is improving through resolution of problem accounts and more conservative underwriting practices. The Company is pursuing these goals in the framework of continued moderate leverage, strong reserves and conservative liquidity.
CORPORATE FINANCE
The Corporate Finance group offers a broad spectrum of services based on the cash flows underlying a client's business. These services are often provided through coordination with private equity sponsors and include the financing of corporate recapitalizations, refinancings, acquisitions and buy-outs of publicly and privately held entities in a wide variety of industries. Loans are provided on both a term and revolving basis for periods of up to ten years and are typically collateralized by senior liens on the borrower's stock or assets or both. Corporate finance transactions may also include some unsecured, subordinated or non-voting equity financing. From time to time the Company buys and sells assignments and participations in loans as a method of managing hold sizes and industry concentrations.
REAL ESTATE FINANCE
The Real Estate Financial Services group provides interim financing to owners, investors and developers primarily for the acquisition, refinancing and renovation of commercial income producing properties in a wide range of property types and geographic areas. These loans generally have terms ranging from one to five years and are principally collateralized by first mortgages. The Company also offers financing for discounted loan portfolio acquisitions, participating junior debt financing to developers of single and multi-family housing, credit sale-leaseback financing for single tenant properties, as well as standby commitments for periods of one to two years.
ASSET BASED FINANCE
Asset based financing is offered by Vendor Finance, Commercial Equipment Finance, Heller Business Credit ("Business Credit") and Heller First Capital ("First Capital"). Vendor Finance provides leasing and financing of equipment through approximately 75 manufacturer and vendor programs, financing of independent leasing companies and direct relationships with end users. Individual transactions are generally under $500,000. This division finances the machining, graphics, healthcare, communication, plastics and production equipment markets. Commercial Equipment Finance provides financing of general equipment transactions
with an average size of $3 million to a diverse group of businesses for expansion, replacement and modernization or refinancing of existing equipment obligations.
Business Credit provides working capital and term financing to middle market companies in a variety of industries for refinancings, recapitalizations and acquisitions. The group also serves as co-lender on or participates in transactions agented by other asset based lenders. The average commitment and loan sizes are $17 million and $8 million, respectively, and are usually for periods of 3 to 5 years. These loans consist of revolving credit facilities secured by accounts receivable and inventory and to a lesser extent, term loans secured by property, plant and equipment. The revolving credit facilities and term loans are generally cross-collateralized.
First Capital is a provider of long-term financial products for small businesses under U.S. Small Business Administration loan programs, which guarantee from 60% to 90% of such financings. These loans generally have an average size of $347,000 and are made to small businesses in a wide variety of industries for working capital, equipment and owner-occupied facilities. The guaranteed portions of these loans are generally sold in the secondary market, with servicing rights retained by First Capital.
CURRENT ASSET MANAGEMENT
The Current Asset Management group primarily offers factoring services to the apparel, textile and home furnishings industries. In return for a commission, the group purchases the client's accounts receivable and provides collection and management information services. Working capital is provided by advancing on a formula basis a percentage of the purchase price of the client's factored accounts receivable. In 1994, the Company was one of the largest factors in the highly competitive United States factoring industry, with volume of $6.6 billion.
SPECIALIZED FINANCE AND INVESTMENTS
Specialized financing and investments are generally originated by four units: Aircraft Finance, Project Investment and Advisory, Heller Equity Capital and Heller Investments. Aircraft Finance offers financing for commercial aircraft and equipment through leases or junior secured loans to an operating lessor, with terms ranging from 2 to 10 years. Project Investment and Advisory offers financing to independent power producers and industrial projects in the form of senior and junior secured loans, equity investments and development loans. Heller Equity Capital and Heller Investments make investments in middle market companies. Heller Equity Capital invests primarily in established middle market companies, while Heller Investments provides capital to companies requiring an operational or financial turnaround.
INTERNATIONAL FACTORING AND ASSET BASED FINANCE
The Company provides factoring and asset based financing outside the United States through investments in commercial finance companies located in 19 countries in Europe, Asia, Australia and Latin America. These companies, which may be wholly-owned or joint ventures, offer factoring, asset based finance, acquisition finance, leasing, vendor finance and/or trade finance programs to the mid-sized corporate sector. During 1994, the Company continued to pursue new international opportunities as it invested in a factoring joint venture in Argentina. In addition to these joint venture activities, the Company has expanded support of the international needs of existing domestic customers.
OWNERSHIP
All of the outstanding Common Stock of the Company is owned by Heller International Corporation (the "Parent"), a wholly-owned subsidiary of The Fuji Bank, Limited ("Fuji Bank"), headquartered in Tokyo, Japan. Fuji Bank also directly owns 21% of the outstanding shares of Heller International Group, Inc., a consolidated subsidiary of the Company engaged in international factoring and asset based financing activities. Fuji Bank is one of the largest banks in the world, with total deposits of approximately $386 billion at September 30, 1994. For a discussion of the "Keep Well Agreement" between Fuji Bank and the Company, see "Certain Relationships and Related Transactions -- Keep Well Agreement with Fuji Bank."
SUMMARY OF TOTAL REVENUES, LENDING ASSETS AND INVESTMENTS
A summary of total revenues, lending assets and investments by product category is included in the "Portfolio Composition" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations." This summary closely corresponds to a classification by operating unit. For information about international operations, see Note 15 to the Consolidated Financial Statements.
RATES CHARGED; COMPETITION; REGULATION
Rates charged by the Company vary depending on the risk and maturity of the loan, competition, current cost of borrowing to the Company, state usury laws and other governmental regulations. The Company's portfolio of receivables primarily earns interest at variable rates. These variable rates float in accordance with various agreed upon reference rates, including the London Inter-bank Offered Rate, the prime rate or corporate base lending rates. Competition varies by operating group. In general, the Company is subject to competition from a variety of financial institutions, including commercial finance companies, banks and leasing companies.
As a subsidiary of Fuji Bank, the Company is subject to the limitations imposed by the Bank Holding Company Act of 1956, as amended, and related regulations adopted by the Board of Governors of the Federal Reserve System. Those regulations restrict the Company to activities that have been defined as being so closely related to banking as to be incidental thereto and also restrict certain lending activities. Certain of the Company's equity investment and small business lending activities are subject to the supervision and regulation of the Small Business Administration. To date, such regulations have not had a material adverse effect on the Company.
ITEM 2.



ITEM 2. PROPERTIES
The Company leases executive offices located at 500 West Monroe Street, Chicago, Illinois 60661 and maintains various offices throughout the United States, Europe, Asia and Australia, all of which are leased premises. For information concerning the Company's lease obligations, see Note 7 to the Consolidated Financial Statements.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is party to a number of legal proceedings as plaintiff and defendant, all arising in the ordinary course of its business. The Company believes that the amounts, if any, which may ultimately be funded or paid with respect to these matters will not have a material adverse effect on the financial condition or results of operations of the Company.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were acted upon in the fourth quarter of 1994.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The outstanding Common Stock of the Company is owned entirely by the Parent, which is wholly-owned by Fuji Bank. There is no public trading market for the Company's Common Stock. The Company is prohibited from paying cash dividends on Common Stock on a timely basis, unless full cumulative dividends on all outstanding shares of Perpetual Preferred, Convertible Preferred and NW Preferred Stock have been paid. All preferred stock dividends have been paid and in 1994 the Company declared and paid a $20 million cash dividend on Common Stock to its Parent. The Company anticipates paying future dividends on Common Stock while maintaining its conservative capital structure.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following table presents information from the Company's Consolidated Financial Statements for the five years ended December 31, 1994, which have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report included herein. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the "Financial Statements and Supplementary Data."
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During 1994, operations and financial condition strengthened as asset quality improved, earnings and portfolio diversification increased and balance sheet strength was maintained. Earnings quality improved as operating revenues of newer businesses grew, while credit quality costs continued to decline. Asset quality improved due to the continued workout of problem accounts, the positive credit performance in the developing asset based businesses and the favorable credit experience of newer financings in the corporate finance and real estate businesses. The Company continued to balance the portfolio by growing the asset based businesses and reducing the level of corporate financings. Although progress has been made in these areas, initiatives to strengthen earnings quality, diversify assets and improve asset quality will continue.
RESULTS OF OPERATIONS
The following table summarizes the Company's operating results for the years ended December 31, 1994, 1993, and 1992.
1994 vs. 1993
The Company achieved record pre-tax income of $174 million, an increase of $41 million or 31%. This increase reflects higher fees and other income from several product categories and a lower provision for losses as portfolio quality improved. These factors offset increased spending on developing businesses and a higher provision for income taxes, as net income slightly exceeded 1993's record level.
Net interest income increased as growth in the level of average earning funds and a reduction in the cost to carry nonearning assets was partially offset by modest spread compression. Average earning funds grew 2% and the portfolio mix shifted towards lower risk, lower priced assets, resulting in some spread compression. Interest income increased due to higher market interest rate levels. Rates charged on 81% of average earning funds employed were based on floating indices such as the three month London Inter-bank Offered Rate, which increased to 4.7% for 1994 from 3.3%. Interest expense increased as a result of the rise in the average borrowing rate to 5.5% from 4.4% and the higher level of debt used to finance portfolio growth.
Fees and other income increased $32 million or 23% reflecting revenues from several sources including higher revenues from certain real estate activities, higher gains from equity interests and investments and higher revenues from asset based businesses.
The income of international joint ventures was somewhat lower, while the income from overall international operations increased primarily due to the improved performance of wholly-owned subsidiaries. This improvement resulted from subsidiaries in the Asia/Pacific region as well as gains on Brazilian investments.
Operating expenses were higher principally due to the increased spending on developing businesses in the asset based product category. While the Company will continue to spend appropriately on developing businesses, the rate of increased spending will slow as these businesses mature.
The provision for losses declined in 1994 as the level of problem assets continued to recede and the performance of new financings over the past four years remained strong. The allowance for losses was maintained at 3% of receivables, which equaled 90% of nonearning receivables at December 31, 1994.
The Company's effective tax rate increased to 30% from 8% for the prior year, in which higher deferred tax benefits were recognized. The Company's provision for income taxes is lower than the statutory rate due to the favorable resolution of a tax issue and the recognition of additional deferred tax benefits during the second quarter.
1993 vs. 1992
The Company achieved record net income of $117 million, an increase of $70 million or 149%, before a tax accounting credit recorded in 1992. This increase reflects lower credit quality costs, strong gains on investments and increased fees and other income from newer business initiatives, as well as continued growth in net interest income. These factors more than offset increased spending on new business initiatives and a higher provision for income taxes.
Net interest income increased due to improved funding spreads resulting from the low interest rate environment, coupled with increased turnover in the portfolio. Interest income decreased as a result of lower floating rate indices. While average earning funds employed remained relatively stable, a shift in the composition of the portfolio occurred, as average corporate financings decreased and average asset based and specialized financing and investments increased. Rates charged on 86% of total average earning funds employed were based on floating rate indices such as the average three month London Inter-bank Offered Rate, which decreased to 3.3% from 3.8% in 1992. Interest expense decreased as a result of a reduction in the average borrowing rate to 4.4% from 4.7% in 1992. The effect of the lower average borrowing rate was partially offset by an increase in the costs associated with the extension of the average maturity of the debt portfolio.
Fees and other income increased $37 million, principally as a result of strong gains on investments from specialized and corporate financings and increased income from real estate and small business loan activities.
Although income of international joint ventures declined primarily as the result of a sale of an interest in a leasing joint venture, overall international operations achieved a $7 million increase in net income, reflecting a lower provision for losses.
Operating expenses were higher as spending for diversification efforts increased in 1993. This increase was partially offset by the benefits of productivity enhancements and expense controls in core businesses.
Although the provision for losses declined in 1993, significant progress was made in addressing the risks associated with troubled credits in the corporate financing and real estate portfolios. The Company maintained its reserve levels at 3% of receivables or 99% of nonearning receivables at December 31, 1993, even though the level of problem accounts receded and the performance of new financings over the last three years has remained strong.
The 8% effective tax rate reflects the recognition of deferred tax benefits.
PORTFOLIO COMPOSITION
Lending assets and investments increased $701 million or 9% during 1994. The following tables present lending assets and investments and total revenues by product category. The asset based finance category includes current asset management, equipment and working capital financing and small business finance activities.
Total revenues include interest income and fees and other income from wholly-owned domestic and international operations, and the Company's share of the net income of its international joint ventures.
Lending Assets and Investments. During the last several years the Company has developed a more balanced, lower risk portfolio, while maintaining its market position in business value and real estate finance. During 1994, asset based lending assets and investments increased $591 million to 25% of total lending assets and investments. Real estate lending assets and investments remained relatively stable at 25% of the portfolio while the level of corporate finance lending assets and investments decreased to 39% of the portfolio. Overall, lending assets increased $407 million and total investments increased $294 million.
The increase in investments is primarily attributable to corporate finance equity investments, participating interests in real estate development loans and an investment in securities collateralized by mobile home park loans.
Concentrations of lending assets of 5% or more at December 31, 1994 or 1993, based on the standard industrial classification of the borrower, are as follows:
The majority of lending assets in the department and general merchandise retail stores and textile and apparel manufacturing categories is comprised of factored accounts receivable which represent short-term trade receivables from numerous customers. The general industrial machines classification is distributed among machinery used for many different industrial applications. The receivables in the general purpose office building, mobile home parks and apartment categories represent interim financing for properties principally located in major U.S. cities, with no concentration in any one geographic location.
Total Revenues. The $112 million, 14% growth in total revenues is primarily attributable to higher interest income from increased market interest rates, higher overall average earning funds and a $32 million increase in fees and other income. Consistent with the shift in lending assets, corporate finance revenues decreased while real estate and asset based revenues increased.
PRODUCT CATEGORIES
Corporate finance. During the last several years, the Company has financed transactions with smaller retained balances and lower debt multiples and has used its syndication capabilities to reduce the amounts of individual exposures. The Company's efforts were facilitated by liquidity in the debt and equity markets. While the number of new transactions during 1994 was similar to the prior year, corporate finance lending assets and investments decreased $263 million to 39% of the total portfolio, as new loans of $1,153 million were more than offset by $1,341 million of repayments and syndications. The average retained size of corporate finance lending assets decreased to $18 million at December 31, 1994 from $21 million at the end of the prior year.
Corporate finance investments increased principally reflecting two equity investments.
Interest income decreased as the lower level of average corporate finance funds employed more than offset the effects of higher floating interest rates. Fees and other income were relatively stable in 1994 due to continued strong gains from the sale of various equity investments. Net writedowns of corporate financings were reduced by $48 million or 38% and nonearning assets were reduced by 58% as portfolio quality continued to improve.
At December 31, 1994, the Company was contractually committed to finance an additional $1,149 million to new and existing borrowers, generally contingent upon the maintenance of specific credit standards. Since many of the commitments are expected to remain unused, the total commitment amounts do not necessarily represent future cash requirements. No significant commitments exist to provide additional financing for nonearning assets.
Corporate financings are generally considered by certain regulatory agencies as highly leveraged transactions.
Real estate finance. During 1994, the group continued to diversify its assets through a number of lending programs, while maintaining its credit discipline and the relative size of its portfolio. Real estate lending assets and investments increased $196 million, as financings of $898 million were partially offset by $623 million of repayments and loan sales. The majority of the increase in real estate lending assets is attributable to the financing of discounted loan portfolio acquisitions and self storage facilities.
The increase in investments is principally attributable to participating debt financings and securities collateralized by mobile home park loans.
Interest income increased, due to higher market interest rates and the higher level of average real estate funds employed. Fees and other income increased primarily due to income from participating interests received in connection with development loans and discounted loan portfolio financings and from the securitization and sale of $245 million of mobile home park loans.
The continued high level of real estate writedowns reflects management's efforts to resolve problem real estate accounts. General purpose office buildings originated under a lending philosophy employed prior to 1990, accounted for the majority of the writedowns. The new philosophy includes financing smaller individual transactions and increasing the diversification of the portfolio in terms of geographic location and collateral type. The level of nonearning assets increased principally reflecting one general purpose office building loan and one large apartment complex loan, both originated prior to 1990. General purpose office building loans accounted for 54% of real estate nonearning assets, while the apartment complex represents another 30% of the real estate nonearning assets. The majority of these assets are located in California, reflecting its slow recovery relative to the national economic recovery.
During 1994, the group continued its efforts to move toward increased diversification of the portfolio. At December 31, 1994 and 1993, real estate lending assets and investments were distributed as follows:
The real estate portfolio is geographically dispersed throughout the United States and, as of December 31, 1994, over 97% of real estate loans were collateralized by first mortgages. In an effort to reduce its exposure to general purpose office buildings, the Company has limited fundings in this sector since 1990. Loan portfolios are financings of borrowers engaged in the acquisition of discounted residential, commercial and industrial loans. The other category includes several product types that are individually less then 5% of the portfolio.
Asset based finance. The asset based lending portfolio is comprised of factored accounts receivable, equipment loans and leases, working capital financings and other collateralized loans. Asset based lending assets and revenues increased 39% and 42%, respectively, through the expansion of various lending products.
Traditional factored accounts are short-term trade receivables primarily from department and general merchandise retailers. These accounts, which are purchased from approximately 575 clients, are highly liquid with an average turnover of 51 days, and are managed continuously by evaluating the consolidated exposure from all clients to a particular customer. Credit files are maintained for approximately 208,000 customers in order to control this credit exposure.
Vendor Finance originates equipment loans and leases generally made with recourse to the vendor and finances independent finance and leasing companies. Commercial Equipment Finance provides financing of equipment that is essential to a borrower's operations. Business Credit provides loans secured primarily by receivables and inventory and to a lesser extent, by property, plant and equipment.
The asset based portfolio and revenues are presented below:
The lending assets in each of the asset based categories grew significantly while the low level of nonearning assets decreased during 1994.
The revenues generated by asset based businesses increased $63 million or 42% primarily as the result of higher funds levels and the effects of the increasing interest rate environment. Although these increases were partially offset by competitive pressures on pricing, these products continued to demonstrate favorable credit experience as evidenced by the ratios of net client writedowns to average lending assets and factoring customer net writedowns to factoring volume.
Specialized finance and investments. The level of specialized financings and investments increased due to new project financings, while exposure to aircraft financings was controlled.
Aircraft Finance offers financing of commercial aircraft and equipment through leases or junior secured loans to operating lessors. Substantially all of the leasing assets were under lease at December 31, 1994. One aircraft loan underwritten prior to 1990 accounted for the majority of the increase in nonearning assets during 1994.
Total revenues increased during 1994 as gains were recognized on a number of equity interests and investments.
International factoring and asset based finance. The financial information presented includes wholly-owned subsidiaries and joint ventures in commercial finance companies in 19 countries. The majority of the assets of wholly-owned subsidiaries are located in Australia and Singapore, while joint ventures consist of investments in 50% or less owned companies in 17 countries in Europe, Asia and Latin America. A number of these companies hold leading positions in their served markets.
Consistent with the presentation in the Consolidated Financial Statements, the investment in and income of international joint ventures represents the Company's ownership share of the net assets and income of the less than wholly-owned companies, while the assets, liabilities and results of operations of the wholly-owned companies are consolidated line by line.
The higher level of investments in joint ventures is the result of 1994 joint venture income and additional equity investments made in Argentina and existing joint ventures, net of distributions. The increase in
receivables and investments of wholly-owned subsidiaries reflects the growth of factoring receivables in Singapore and Australia. Other investments are comprised of trading securities in Brazil.
The $7 million improvement in overall international income principally reflects increased profits from the Asia/Pacific region and gains on Brazilian trading securities. The international income amounts shown above are before the central administration expenses, provisions for losses and costs of financing the Company's investments.
CREDIT MANAGEMENT
The Company manages credit risk through its underwriting procedures, centralized approval of individual transactions and active portfolio and account management. Underwriting procedures have been developed for each product category which enable the Company to assess a prospective borrower's ability to perform in accordance with established loan terms. These procedures may include analyzing business or property cash flows and collateral values, performing financial sensitivity analyses and assessing potential exit strategies. Financing and restructuring transactions over a certain amount are reviewed by an independent corporate credit function and require approval by a centralized credit committee.
The Company manages the portfolio by monitoring transaction size and diversification by industry, geographic area and property type. Through these methods, management identifies and limits exposure to unfavorable risks, and seeks favorable financing opportunities. Loan grading systems are used to monitor the performance of loans by product category and an overall risk classification system is used to monitor the risk characteristics of the total portfolio. These systems generally consider debt service coverage, the relationship of loan to underlying business or collateral value, industry characteristics, principal and interest risk and credit enhancements such as guarantees, irrevocable letters of credit and recourse provisions. When problem accounts are identified, professionals that specialize in various industries formulate strategies to accelerate the resolution process. A centralized department, independent of operations, periodically reviews the ongoing credit management of the individual portfolios and reports its findings to senior management and the Audit Committee of the Board of Directors.
PORTFOLIO QUALITY
During 1994, portfolio quality continued to improve reflecting the lower level of risk in the newer businesses, the favorable performance of real estate and corporate financings originated since 1990, and the continued reduction of the pre-1990 corporate finance and office building portfolios. As a result, nonearning assets decreased $127 million to 4% of total lending assets.
Nonearning Assets. Receivables are classified as nonearning when there is significant doubt as to the ability of the debtor to meet current contractual terms as evidenced by loan delinquency, reduction of cash flows, deterioration in the loan to value relationship or other considerations. Nonearning assets decreased $127 million, from 5.9% to 4.0% of total lending assets during 1994, through the positive performance of the new portfolio and resolution and writedown of problem accounts. Although the level of nonearning assets is within the 3% to 5% targeted range, the Company will continue to seek to lower the proportion of nonearning
assets in the portfolio and reduce credit quality costs. The table below presents nonearning assets by product category.
Corporate finance nonearning assets decreased $170 million and at December 31, 1994, the remaining corporate finance nonearning assets are principally comprised of four accounts which were underwritten prior to 1990. The increase in real estate nonearning assets is primarily due to two large credits originated prior to 1990. At December 31, 1994, 54% of the real estate nonearning assets represent financings of general purpose office buildings and 30% is due to one apartment credit, underwritten prior to 1990.
Allowances for Losses. The allowance for losses of receivables is a general reserve available to absorb losses in the entire portfolio. This allowance is established through direct charges to income and losses are charged to the allowance when all or a portion of a receivable is deemed uncollectible. The allowance is reviewed periodically and adjusted when necessary given the size and loss experience of the overall portfolio, the effect of current economic conditions and the collectibility and workout potential of identified risk accounts. The allowance for losses of receivables was maintained at 3% of receivables at December 31, 1994. The ratio of the prior year end total allowance for losses to total net writedowns increased to 126% in 1994 from 108% in the prior year, with further improvement anticipated in 1995. For repossessed assets, if the fair value declines after the time of repossession, a valuation allowance is established to reflect this reduction in value.
Delinquent Earning Accounts and Troubled Debt Restructurings. The level of delinquent earning accounts changes between periods based on the timing of payments and the effects of changes in general economic conditions on the Company's borrowers. Consistent with the improvement in overall portfolio quality, the ratio of delinquent earning accounts to receivables decreased. Loans in the real estate portfolio accounted for approximately 68% of the troubled debt restructures at December 31, 1994 and 1993.
Writedowns. Total net writedowns decreased during 1994 as the reduction in corporate finance net writedowns more than offset the increase in net writedowns of the real estate portfolio. Real estate net writedowns continued at a high level principally due to losses on general purpose office building loans originated under the lending philosophy employed prior to 1990.
While management plans to continue to resolve problem accounts, it believes that, if favorable forecasted economic conditions continue, total net writedowns will decrease again in 1995.
LIQUIDITY AND CAPITAL RESOURCES
During 1994 lending assets and investments increased $701 million, $878 million of notes and debentures were retired and dividends totaling $32 million were paid on common and preferred stock. To meet these funding requirements, the Company supplemented its improved cash flow from operations by issuing $841 million of senior notes and debentures, increasing commercial paper and short-term borrowings by $470 million, and selling $245 million of securitized mobile home park receivables.
Leverage and the level of commercial paper and short-term borrowings remain conservative relative to other similarly rated finance companies and are within the ranges targeted by the Company to maintain a strong financial position. The ratio of commercial paper and short-term borrowings to total debt was 38% at December 31, 1994, compared with 33% and 39% at December 31, 1993 and 1992, respectively. The ratio of debt to total stockholders' equity at December 31, 1994, was 4.8x, compared with 4.7x and 5.4x at December 31, 1993 and 1992, respectively.
The Company plans to continue to be active in issuing senior debt during 1995, primarily due to the need to replace $459 million of maturing debt and support the combined growth of the asset based and other portfolios. The Company also anticipates paying future dividends on common stock, while maintaining its conservative capital structure.
The Company increased its bank credit facilities to $2.3 billion from $2.1 billion effective May 31, 1994. These arrangements include a $1,150 million three-year credit facility and a $1,150 million one-year credit facility. The one-year credit facility includes a term loan option which expires one year after the option exercise date. In addition, on March 30, 1994 the Company further increased its liquidity support from unaffiliated financial institutions by entering into an agreement to sell, from time to time, an undivided interest in a designated pool of factored accounts receivable of up to $500 million. Under this agreement, the amount of liquidity provided by unaffiliated financial institutions increased to $450 million from $65 million under a similar agreement which it replaced.
The bank credit facilities together with $500 million in liquidity support from Fuji Bank under the "Keep Well Agreement," and $494 million available under the factored accounts receivable sale program provide the Company with an aggregate amount of $3,294 million of committed credit and sale facilities which represent 134% of outstanding commercial paper and short-term borrowings. Committed credit and sale facilities from unaffiliated entities amounted to 112% of outstanding commercial paper and short-term borrowings at December 31, 1994. The liquidity provided by the bank credit facilities and the Keep Well Agreement remained unused at December 31, 1994. Extensions of the bank credit facilities will be requested in 1995.
The consolidated international subsidiaries are funded primarily through committed and uncommitted foreign bank credit facilities totaling $47 million and $111 million, respectively, at December 31, 1994.
RISK MANAGEMENT
The Company maintains a conservative currency and interest rate risk posture by using derivatives as an integral part of its asset/liability management program to reduce its overall level of financial risk. These derivatives, particularly interest rate swap agreements, are used to lower funding costs, diversify sources of funding or alter interest rate exposure arising from mismatches between assets and liabilities.
Before entering into a derivative agreement, management determines that an inverse correlation exists between the value of a hedged item and the value of the derivative. At the inception of each agreement, management designates the derivative to specific assets, pools of assets or liabilities. The risk that a derivative will become an ineffective hedge is generally limited to the possibility that an asset being hedged will prepay before the related derivative expires. Accordingly, after inception of a hedge, asset/liability managers monitor its effectiveness through an ongoing review of the amounts and maturities of asset, liability and swap positions. This information is reported to the Financial Risk Management Committee ("FRMC") which determines the
direction the Company will take with respect to its asset/liability position. This position and the related activities of the FRMC are reported regularly to the Executive Committee of the Board of Directors and to the Board of Directors.
The Company has numerous swap agreements with commercial banks and investment banking firms with notional amounts aggregating $3.9 billion at December 31, 1994. Before the effect of these swap agreements, the Company's variable rate assets exceeded variable rate liabilities by $1.9 billion or 23% of total assets. After the effect of these interest rate swap agreements, variable rate liabilities exceeded variable rate assets by approximately $171 million or 2% of total assets. The average interest rates paid by the Company on outstanding indebtedness, before and after the effect of swap agreements, during the three years ended December 31, 1994 are summarized below. These swap agreements increased net interest income by $40 million during 1994. If no management actions were taken to alter the gap position existing at December 31, 1994, a one percent parallel shift in the yield curve would have a $3 million effect on 1995 net interest income.
In addition, at December 31, 1994, the Company entered into $212 million of foreign currency forward exchange contracts in order to hedge the exposure to foreign currency fluctuations arising from the translation of international earnings and investments.
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board has released Statements of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," and No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosure," which the Company is required to adopt no later than 1995. SFAS 114 requires impaired loans to be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or the value of the collateral if the loan is collateral dependent.
SFAS Nos. 114 and 118 require changes in the disclosures of impaired loans. When the Company adopts the provisions of these statements, receivables that are now treated as in-substance repossessed collateral will be presented as impaired receivables until the underlying collateral is physically possessed or legally foreclosed by the Company, at which time it will be presented as a repossessed asset. Upon adoption, this provision will be retroactively applied resulting in the reclassification of $31 million of in-substance repossessed assets to impaired receivables at December 31, 1994. The Company does not expect the adoption of these pronouncements to have a material effect on its results of operations or financial position.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HELLER FINANCIAL, INC. AND SUBSIDIARIES
MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Heller Financial, Inc. and its subsidiaries has the responsibility for preparing the accompanying financial statements and is responsible for their integrity and objectivity. The statements were prepared in accordance with generally accepted accounting principles and are not misstated due to material fraud or error. The financial statements include amounts that are based on management's best estimates and judgments. Management also prepared the other information in the December 31, 1994 annual report filed on Form 10-K and is responsible for its accuracy and consistency with the financial statements.
The Company's financial statements have been audited by Arthur Andersen LLP, independent public accountants selected by the holder of the common stock. Management has made available to Arthur Andersen LLP all the Company's financial records and related data, as well as the minutes of the stockholders' and directors' meetings. Furthermore, management believes that all representations made to Arthur Andersen LLP during its audit were valid and appropriate.
Management of the Company has established and maintains a system of internal control that provides reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition, and the prevention and detection of fraudulent financial reporting. The system of internal control provides for appropriate division of responsibility and is documented by written policies and procedures that are communicated to employees with significant roles in the financial reporting process and updated as necessary. Management monitors the system of internal control for compliance. The Company maintains an internal auditing program that independently assesses the effectiveness of internal controls and recommends possible improvements. The Company's independent public accountants have developed an overall understanding of our accounting and financial controls and have conducted other tests they consider necessary to support their opinion on the financial statements. Management has considered the internal auditors' and Arthur Andersen LLP's recommendations concerning the Company's system of internal control and has taken actions that it believes are cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that, as of December 31, 1994, the Company's system of internal control is adequate to accomplish the objectives discussed above.
Management also recognizes its responsibility for fostering a strong ethical climate so that the Company's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the Company's code of ethical business practices, which is publicized throughout the Company. The code of ethical business practices addresses, among other things, the necessity of ensuring open communication within the Company, potential conflicts of interest, compliance with all domestic and foreign laws, including those relating to financial disclosure, and the confidentiality of proprietary information.
MICHAEL S. BLUM Chairman and Chief Executive Officer
RICHARD J. ALMEIDA Executive Vice President and Chief Financial Officer
ANTHONY O'B. BEIRNE Senior Vice President and Controller
HELLER FINANCIAL, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Heller Financial, Inc.:
We have audited the accompanying consolidated balance sheets of HELLER FINANCIAL, INC. (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1994 and 1993, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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, the financial statements referred to above present fairly, in all material respects, the financial position of Heller Financial, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
We have also previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheets as of December 31, 1992, 1991 and 1990, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the two years in the period ended December 31, 1991 (none of which are presented herein), and we have expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the selected financial data for each of the five years in the period ending December 31, 1994, appearing on page 6 is fairly stated in all material respects in relation to the consolidated financial statements from which it has been derived.
ARTHUR ANDERSEN LLP
Chicago, Illinois, January 26, 1995
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (IN MILLIONS, EXCEPT FOR INFORMATION ON SHARES)
ASSETS
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN MILLIONS)
At December 31, 1994, 1993, 1992 and 1991, the retained earnings balance included deferred foreign currency translation adjustments of $(17), $(12), $(7), and $1, respectively. Retained earnings also included $5 and $9 of unrealized gains on securities available for sale, net of tax, at December 31, 1994 and 1993, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF ACCOUNTING POLICIES
Description of the Reporting Entity and Basis of Presentation --
Heller Financial, Inc. and its subsidiaries ("The Company") are engaged principally in furnishing commercial finance services to businesses in the United States and investing in and operating commercial finance companies throughout the world. All of the common stock of the Company is owned by Heller International Corporation (the "Parent"), which is a wholly-owned subsidiary of The Fuji Bank, Limited ("Fuji Bank") of Tokyo, Japan. Fuji Bank also directly owns 21% of the outstanding shares of Heller International Group, Inc. ("International Group"), a consolidated subsidiary, through which the Company holds its international operations. The remaining 79% of the outstanding shares of International Group are owned by the Company. The accompanying consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Investments in affiliated companies owned 50% or less are accounted for by the equity method. Certain temporary interests are included in investments and are carried at cost.
Cash and Cash equivalents --
Cash and cash equivalents consist of cash deposits maintained in banks and short-term debt securities with original maturities of less than 60 days. The fair value of cash equivalents approximates their carrying value.
Receivables --
Receivables are presented net of unearned income and are carried at net realizable value. Unearned income generally includes deferred loan origination and commitment fees, direct loan origination costs and other amounts attributed to the fair value of equity interests and other investments received in connection with certain financings. These amounts are amortized to interest income using the effective interest method over the life of the related loan or commitment period. From time to time, the Company finances certain loans which it may elect to sell if the aggregate amount of these loans reaches a sufficient size and market conditions are favorable. These receivables are also presented net of unearned income and are carried at net realizable value. In the event the Company sells a portion of a loan that it had originated, any deferred fees or discounts relating to the portion of the loan sold are recognized in income as part of the gain or loss on sale. For loan sales that qualify as syndications, fees received are generally recognized in income, subject to certain yield tests, when the syndication is complete.
As a commercial finance company, income recognition is reviewed on an account by account basis. Collateral is evaluated regularly primarily by assessing the related current and future cash flow streams. Loans are classified as nonearning and all unearned income amortization is suspended when there is significant doubt as to the ability of the debtor to meet current contractual terms. Numerous factors including loan covenant defaults, deteriorating loan-to-value relationships, delinquencies greater than 120 days, the sale of major income generating assets or other major operational or organizational changes may lead to income suspension. An account taken nonearning may be restored to earning status either when all delinquent principal and interest have been paid under the original contractual terms or the account has been restructured and has demonstrated both the capacity to service the amended terms of the debt and adequate loan to value coverage.
Allowance for Losses -- The allowance for losses of receivables is established through direct charges to income. Losses are charged to the allowance when all or a portion of a receivable is deemed impaired and uncollectible as determined by account management procedures. These procedures include assessing how the borrower is affected by economic and market conditions, evaluating operating performance and reviewing loan-to-value relationships.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management evaluates the general allowance for losses on a quarterly basis. Nonearning assets and all loans with certain loan grading characteristics are reviewed to determine if there is a potential risk of loss under varying scenarios of performance. The estimates of potential loss for these individual loans are aggregated and added to a general reserve requirement, which is based on the total of all other loans in the portfolio. This total reserve requirement is then compared to the existing allowance for losses and adjustments are made, if necessary.
Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," an amendment to SFAS No. 114, require that impairment of a loan be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, at the observable market price of the loan, or at the fair value of the collateral if the loan is collateral dependent. The Company expects to adopt the new standard prospectively in 1995. Adoption of the new standard is not expected to have a significant effect on either the financial statements or current loan valuation procedures related to impaired loans.
Securitized receivables --
From time to time certain receivables are securitized and sold to investors with limited recourse. Upon sale of the loans, a gain is recognized for the difference between the net carrying value of the receivables and the fair value of the securities sold. The gain on the sale is reduced by a reserve established for estimated probable future losses. The gain recognized is recorded in fees and other income. Income from the acceleration of discounts and deferred fees attributed to the loans sold is recorded as interest income. The Company may choose to retain a portion of the securitized receivables. Under these circumstances, the amount of the gain related to the retained portion is deferred and amortized over the life of the securities. The retained securities are recorded as debt securities available for sale.
Investments in Joint Ventures --
Investments in unconsolidated joint ventures represent investments in companies in 17 foreign countries. The Company accounts for its investments in joint ventures under the equity method of accounting. Under this method, the Company recognizes its share of the earnings or losses of the joint venture in the period in which they are earned by the joint venture. Dividends received from joint ventures reduce the carrying amount of the investment.
Investments --
Equity interests and investments -- Investments in warrants, certain common and, preferred stocks and other equity investments which are not subject to the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," are carried at cost. The valuation of these investments is periodically reviewed and the investment balance is written down to reflect declines in value determined to be other than temporary. Gains or losses recognized upon sale or write-down of these investments is recorded in fees and other income.
Equipment on lease -- Aircraft and related equipment under lease are recorded at cost and depreciated over their estimated useful lives principally using the straight line method. Rental revenue is reported over the lease term as it becomes receivable according to the provisions of the lease.
Available for sale, trading, and held to maturity securities -- Investments designated as available for sale securities are carried at fair value using the specific identification method with unrealized gains or losses included in stockholders' equity, net of related taxes. Trading securities are carried at fair value with the related unrealized gains or losses included currently in fees and other income. Securities that are held to
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maturity such as $72 million of short-term debt securities included in cash equivalents, are recorded at amortized cost but are written down to fair value to reflect declines in value determined to be other than temporary.
Acquisition, development, and construction investments -- The Company provides financing through certain loan arrangements that are recorded as investments by the Company. These investments are accounted for under the cost recovery method. Income is generally recognized only to the extent that cash received exceeds the investment carrying amount.
Other Assets --
Repossessed Assets -- Assets which have been legally or substantively acquired in satisfaction of receivables are carried at fair value less selling costs and are included in other assets, net of the related valuation allowance. After repossession, operating costs are expensed and cash receipts are applied to reduce the asset balance. In connection with the adoption of SFAS No. 114 in 1995, an in-substance repossessed receivable will be presented as an impaired receivable until the related collateral is physically possessed or legally foreclosed by the Company, at which time it will be accounted for as a repossessed asset.
Income Taxes --
The Company and its wholly-owned domestic subsidiaries are included in the consolidated United States federal income tax return of the Parent. The International Group files a separate United States federal income tax return. The Company reports income tax expense as if it were a separate taxpayer and records future tax benefits as soon as it is more likely than not that such benefits will be realized.
Derivative Financial Instruments --
The Company is a party to interest rate swap, cross currency and basis swap agreements which have been designated by the Company to hedge its exposure to interest rate risk on specific assets, pools of assets or liabilities. The swap agreements are generally held to maturity and the differential paid or received under these agreements is recognized over the life of the related agreement.
The Company periodically enters into forward currency exchange contracts which are designated as hedges of its exposure to foreign currency fluctuations from the translation of its foreign currency denominated investments in certain European and Asian joint ventures and subsidiaries. Through these contracts, the Company primarily sells the local currency and buys U.S. dollars. Gains and losses resulting from translation of foreign currency financial statements and the related effects of the hedges of net investments in joint ventures and subsidiaries outside the United States are accumulated in stockholders' equity, net of related taxes, until the international investment is sold or substantially liquidated.
The Company also periodically enters into forward currency exchange contracts designated to hedge its exposure to foreign exchange fluctuations resulting from the translation of earnings from certain joint ventures and subsidiaries. These contracts are carried at fair value, with gains or losses included in the determination of net income.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. LENDING ASSETS
Lending assets include receivables and repossessed assets.
Diversification of Credit Risk --
Concentrations of lending assets of 5% or more, based on the standard industrial classification of the borrower, are as follows:
The majority of lending assets in the department and general merchandise retail stores and textile and apparel manufacturing categories is comprised of factored accounts receivable which represent short-term trade receivables from numerous customers. The general industrial machines classification is distributed among machinery used for many different industrial applications. The receivables in the general purpose office building, mobile home park and apartment categories represent interim financing for properties principally located in major U.S. cities, with no concentration in any one geographic location.
The Company's corporate finance group provides financing for recapitalizations, refinancings, acquisitions and corporate buy-outs. As of December 31, 1994, total corporate finance lending assets amounted to $3,116 million, consisting of 177 accounts with an average balance of $18 million, to borrowers in a wide variety of industries. Total corporate finance lending assets as of December 31, 1993 were $3,479 million and consisted of 164 accounts having an average balance of $21 million. The corporate finance portfolio is predominantly collateralized by senior liens on the borrower's stock or assets, or both. Such financing transactions are generally considered highly leveraged transactions.
Commercial loans consist principally of corporate finance and asset based receivables. Asset based receivables are collateralized by inventory, receivables, property, plant and equipment of the borrowers. Real estate loans are principally collateralized by first mortgages on commercial and residential real estate. Equipment loans and leases are secured by the underlying equipment and the Company often has recourse to the equipment vendor.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Contractual Maturity of Loan Receivables --
The contractual maturities of the Company's receivables at December 31, 1994, which are presented in the table below, should not be regarded as a forecast of cash flows (in millions):
Nonearning Assets and Troubled Debt Restructurings --
The Company has loans for which it has ceased to recognize interest and fee income. The following table sets forth information regarding nonearning receivables and repossessed assets.
Nonearning assets have decreased $127 million to 4.0% from 5.9% of total lending assets during 1994 due to the resolution and writedown of several problem accounts in the corporate finance and real estate portfolios and the favorable performance of loans originated since 1990 in both the core and developing businesses. The remaining nonearning assets are principally comprised of $124 million from corporate finance and $150 million from real estate which are primarily attributed to accounts underwritten prior to 1990.
Repossessed assets include in-substance repossessions of $31 million, $50 million and $45 million at December 31, 1994, 1993 and 1992, respectively, which were accounted for in the same manner as collateral that had been formally repossessed, even though the Company did not hold legal title. Upon adoption of SFAS No. 114 and SFAS No. 118 in the first quarter of 1995, similar amounts will be reclassified and reported as impaired receivables.
At December 31, 1994 and 1993, the Company had $54 million and $53 million, respectively, of loans which resulted from troubled debt restructurings. At December 31, 1994, the Company was not committed to lend significant additional funds in connection with nonearning assets or troubled debt restructurings. The following table indicates the effect on income if interest on nonearning loans and troubled debt restructurings outstanding at year-end had been recognized at original contractual rates during the year.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Allowance for Losses --
At December 31, 1994, $66 million of the $227 million allowance for losses of receivables was related to nonearning receivables. The changes in the allowance for losses of receivables and in the valuation allowance for repossessed assets were as follows:
Writedowns occurring at the time of repossession are considered writedowns of receivables.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS AND OTHER ASSETS
The following table sets forth a summary of the major components of investments and other assets (in millions):
Equity interests and investments principally include warrants and common and preferred stocks received in connection with certain financings. During the year ended December 31, 1994, $117 million of positions in repossessed companies were converted to equity investments as a result of significant cash equity infusions into the companies by independent third parties.
Equipment on lease is comprised of aircraft and related equipment. Noncancellable future minimum rental payments under the leases are $23 million, $20 million, $14 million, $4 million and $2 million for 1995 through 1999. Substantially all equipment was under lease as of December 31, 1994.
The available for sale debt securities principally consist of subordinated securities retained in connection with the securitization of certain mobile home park receivables during the fourth quarter of 1994. The mobile home park securities mature on dates ranging to 2004 based on the related stated maturity dates of the underlying receivables. The Company has established a reserve of $1 million for estimated probable losses related to these securities.
The available for sale equity securities are principally comprised of common stocks. Unrealized holding gains on these securities amounted to $16 million and $13 million at December 31, 1994 and 1993, respectively, and are recognized in stockholders' equity net of tax. The Company also realized $6 million in gains from sales of these equity securities during the year ended December 31, 1994 from related proceeds approximating $11 million.
Repossessed assets are shown net of an allowance of $10 million and $15 million at December 31, 1994 and 1993, respectively. During 1994, $59 million of receivables were classified as repossessed assets and $51 million of repossessed assets were resolved and returned to receivables. The comparable amounts for 1993 were $87 million and $25 million, and for 1992, $132 million and $33 million, respectively.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company holds certain foreign investments which are classified as trading securities. Net gains of $7 million and $1 million related to these investments were recorded in income for the years ended December 31, 1994 and 1993, respectively.
Other investments include real estate financings in which the Company receives cash flow or residual participation interests.
4. SENIOR DEBT
Commercial Paper and Short-Term Borrowings -- The table below sets forth information concerning commercial paper. The average amounts are computed based on the average daily balances outstanding during the year. The Company issues commercial paper with maturities ranging up to 270 days.
In addition, the consolidated international subsidiaries had short-term borrowings of $113 million, $69 million and $54 million at December 31, 1994, 1993 and 1992, respectively, which are used to finance international operations.
Available credit and asset sale facilities -- At December 31, 1994, the Company had committed credit and asset sale facilities which totaled $3,294 million. This total includes $2,300 million in bank facilities, $500 million in liquidity support from Fuji Bank as part of the Keep Well Agreement, and $494 million of additional liquidity available under a receivables purchase agreement.
The receivables purchase agreement expires March 24, 1999 and provides that the Company may sell to Freedom Asset Funding Corporation ("Freedom"), with limited recourse, an undivided interest of up to $500 million in a designated pool of its factored accounts receivable. The Company had sold $6 million of receivables for cash at December 31, 1994. Freedom has entered into a revolving liquidity facility and an operating agreement with Fuji Bank and one of its affiliates. Under the terms of existing debt agreements at December 31, 1994, the Company could have borrowed an additional $6.4 billion of debt.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes and debentures -- The scheduled maturities of debt outstanding at December 31, 1994, other than commercial paper and short-term borrowings and excluding unamortized discount, are as follows:
The Company had fixed rate debt of $2,510 million and $2,405 million at December 31, 1994 and 1993 respectively. At December 31, 1994, total fixed rate debt included $146 million of fixed rate debt denominated in Japanese yen which pays interest at the contractual rate of 3.8%. The Company had fixed the exchange rate of Japanese yen to U.S. dollar at 103 Japanese yen and had an effective rate of interest on this debt of 5.59% at December 31, 1994 due to a cross currency interest rate swap agreement.
The contractual interest rates for remaining U.S. dollar denominated fixed rate debt range between 5.625% and 9.7% and 5.625% and 13% at December 31, 1994 and 1993, respectively. The weighted average interest rates of the U.S. dollar denominated fixed rate debt at December 31, 1994 and 1993 are 7.12% and 5.22%, after the effect of related swap agreements which converted certain of the Company's fixed rate debt to floating rate debt. Excluding swaps, the weighted average interest rate on this debt would have been 8.06% and 8.28% at December 31, 1994 and 1993, respectively.
The Company's floating rate debt was $1,423 million and $1,565 million at December 31, 1994 and 1993 respectively, which included $328 million of floating rate debt denominated in Japanese yen. The yen denominated floating rate debt consists of two issuances in principal amounts of $200 million and $128 million. The Company had fixed the exchange rate of Japanese yen to U.S. dollars at 125 and 117 Japanese yen, respectively. The notes combined had an effective interest rate of 6.94% and 3.88% at December 31, 1994 and 1993, respectively, due to cross currency interest rate swap agreements.
The contractual rates on the remaining U.S. dollar denominated floating rate debt are based primarily on indices such as the Constant Maturity Treasury Index less a range of .12% to .40%, the Federal Funds rate plus .275% to .38%, the three month London Inter-bank Offered Rate plus .17% to .95%, or Prime less 2.28%. The weighted average interest rates on this debt at December 31, 1994 and 1993 including the effect of basis swap agreements, were 6.39% and 3.90%. Excluding the effect of swaps, the weighted average rate on U.S. dollar denominated floating rate debt would have been 6.46% and 4.49% at December 31, 1994 and 1993.
Notes redeemable solely at the option of the Company prior to the final maturity date are reflected in the table above as maturing on the final maturity date. As part of the Company's liability management program, certain debt issues totaling $70 million were repurchased during 1994 before they were contractually due.
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to several agreements involving financial instruments with off-balance sheet risk. These instruments are used to meet the financing needs of borrowers and to manage the Company's own exposure to interest rate and currency exchange rate fluctuations. These instruments principally include interest rate swap agreements, forward currency exchange contracts, loan commitments, letters of credit, and guarantees. All of the Company's derivative financial instruments are held for purposes other than trading.
Derivative financial instruments used for risk management purposes -- Derivatives are used as an integral part of the Company's overall asset/liability management program to manage its exposure to
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fluctuations in interest rates and currency exchange rates arising from normal business operations. The Company is not an interest rate swap dealer nor is it a trader in derivative securities, and it has not used speculative derivative products for the purpose of generating earnings from changes in market conditions.
Before entering into a derivative agreement, management determines that an inverse correlation exists between the value of the hedged item and the value of the derivative. At the inception of each agreement, management designates the derivative to specific assets, pools of assets or liabilities. The risk that a derivative will become an ineffective hedge is generally limited to the possibility that an asset or liability being hedged will prepay before the related derivative expires. Accordingly, after inception of a hedge, asset/liability managers monitor its effectiveness through an ongoing review of the amounts and maturities of assets, liabilities and swap positions. This information is reported to the Financial Risk Management Committee (FRMC) which determines the direction the Company will take with respect to its asset/liability position. The asset/liability position of the Company and the related activities of the FRMC are reported regularly to the Executive Committee of the Board of Directors and to the Board of Directors.
The following table summarizes the notional amounts of the Company's interest rate and foreign exchange contracts. The credit risk associated with these instruments is limited to amounts earned but not collected and to any additional amounts which may be incurred to replace the instrument under then current market conditions. These amounts are substantially less than the notional amounts of these agreements. The Company manages this risk by establishing minimum credit ratings for each counterparty and by limiting the exposure to individual counterparties as measured by the total notional amount and the current replacement cost of existing agreements. The Company has not experienced nonperformance by any counterparty related to its derivative financial instruments.
Interest rate swaps are primarily used to convert fixed rate financings to variable rate debt. Less frequently, when the issuance of debt denominated in a foreign currency is deemed more cost effective, cross currency interest rate swaps are employed to convert foreign currency denominated debt to U.S. dollar denominated debt. The Company also uses swap agreements to alter the characteristics of specific asset pools to more closely match the interest terms of the underlying financing. These agreements enhance the correlation of the interest rate and currency characteristics of the Company's assets and liabilities and thereby mitigate its exposure to interest rate volatility. Basis swap agreements involve the exchange of two different floating rate interest payment obligations and are used to manage the basis risk between different floating rate indices.
Forwards are contracts for the delivery of an item in which the buyer agrees to take delivery of an instrument or currency at a specified price and future date. The Company periodically enters into forward contracts which hedge its exposure to foreign currency fluctuations from the translation of investments in and earnings from its European and Asian joint ventures and subsidiaries. The Company also periodically enters into forward contracts to hedge receivables denominated in foreign currencies or may purchase foreign currencies in the spot market in order to settle a foreign currency denominated liability.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Commitments, letters of credit and guarantees -- The Company generally enters into various commitments, letters of credit and guarantees in response to the financing needs of its customers. As many of the agreements are expected to expire unused, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to borrowers and the credit quality and collateral policies are similar to those involved in the Company's normal lending transactions. The contractual amount of the Company's commitments, letters of credit and guarantees are shown below:
Commitments to fund new borrowers generally have fixed expiration dates and termination clauses and typically require payment of a fee. For factoring credit guarantees, the Company receives a fee for guaranteeing the collectibility of certain factoring clients' accounts receivable. Under this arrangement, clients generally retain the responsibility for collection and bookkeeping. Losses related to these services have historically not been significant. Letters of credit and financial guarantees are conditional commitments issued by the Company to guarantee the performance of a borrower or an affiliate to a third party. At December 31, 1994, the contractual amount of guarantees includes $20 million related to affiliates.
Other financial instruments with off-balance sheet risk -- As of December 31, 1994, the Company had sold $6 million of factored receivables for cash, under a receivables purchase agreement with limited recourse. As the average maturity of factored accounts receivable is 51 days and the historical loss experience is substantially less than 1%, the Company's recourse exposure is considered minimal.
6. LEGAL PROCEEDINGS
The Company is party to a number of legal proceedings as plaintiff and defendant, all arising in the ordinary course of its business. The Company believes that the amounts, if any, which may ultimately be funded or paid with respect to these matters will not have a material adverse effect on the financial condition or results of operations of the Company.
7. RENTAL COMMITMENTS
The Company and its consolidated subsidiaries have minimum rental commitments under noncancellable operating leases at December 31, 1994, as follows (in millions):
The total rent expense, net of rental income from subleases, was $17 million, $15 million and $12 million in 1994, 1993 and 1992, respectively.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. PREFERRED STOCK
Redeemable Preferred Stock -- The Company has authorized the issuance of 100,000 shares of a series of preferred stock designated NW Preferred Stock, Class B (No Par Value) ("NW Preferred Stock"), pursuant to the "Keep Well Agreement" between the Company and Fuji Bank wherein, among other things, Fuji Bank has agreed to purchase NW Preferred Stock in an amount required to maintain the Company's net worth at $500 million. The Company's net worth was $1,330 million at December 31, 1994. If and when issued, dividends will be paid quarterly on NW Preferred Stock at a rate per annum equal to 1% over the three-month London Inter-bank Offered Rate. Subject to certain conditions, NW Preferred Stock will be redeemable at the option of the holder within a specified period of time after the end of a calendar quarter in an aggregate amount not greater than the excess of the net worth of the Company as of the end of such calendar quarter over $500 million and at a redemption price equal to the price paid for such stock plus accumulated dividends. No purchases of NW Preferred Stock have been made by Fuji Bank under this agreement.
Other Preferred Stock -- The Perpetual Preferred Stock is not redeemable prior to September 22, 2000. On or after that date, the Perpetual Preferred Stock will be redeemable at the option of the Company, in whole or in part at a redemption price of $25 per share, plus accrued and unpaid dividends. The Perpetual Preferred Stock ranks senior with respect to payment of dividends and liquidation to other outstanding or authorized preferred stock of the Company.
The Company's Cumulative Convertible Preferred Stock, Series D ("Convertible Preferred Stock") is held by the Parent. The Convertible Preferred Stock has a dividend yield established quarterly at a rate of 1/2% less than the announced prime commercial lending rate of Morgan Guaranty Trust Company of New York, payable quarterly. Under the terms of the Convertible Preferred Stock, the Company is prohibited from paying cash dividends on Common Stock unless full cumulative dividends on all outstanding shares of Convertible Preferred Stock for all past dividend periods have been paid. The Convertible Preferred Stock is convertible into Common Stock of the Company at the conversion price of one share of Common Stock for each 200 shares of Convertible Preferred Stock. Subject to certain conditions, the Convertible Preferred Stock is redeemable at any time at the option of the Company at a redemption price equal to the price paid for such stock plus accumulated dividends.
9. DIVIDEND RESTRICTIONS AND PAYMENTS
Dividends may legally be paid only out of the Company's surplus, as determined under the provisions of the Delaware General Corporation Law, or net profits for either the current or preceding fiscal year, or both. In addition, the Company is prohibited from paying cash dividends on Common Stock or any other preferred stock that ranks, with respect to payment of dividends, equal or junior to the Perpetual Preferred Stock, unless full cumulative dividends on the Perpetual Preferred Stock have been paid.
The Company declared and paid $10 million of Perpetual Preferred Stock dividends in both 1994 and 1993 and a $1 million dividend in 1992. Dividends declared and paid on the Company's Convertible Preferred Stock amounted to $2 million each year during 1994, 1993 and 1992. The Company also declared and paid a $20 million cash dividend on Common Stock in 1994.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. OPERATING EXPENSES
The following table sets forth a summary of the major components of operating expenses:
The Parent performs services for the Company and charges the Company for the related costs incurred. These charges are reflected in certain of the above captions.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. BENEFIT PLANS AND OTHER POST RETIREMENT BENEFITS
The Company has various incentive compensation plans and a savings and profit-sharing plan which provide for annual contributions to eligible employees based on the Company's achievement of certain financial objectives and employee achievement of certain objectives.
In addition, the Company has noncontributory defined benefit pension plans covering substantially all of its domestic employees. Certain foreign employees are covered by contributory or noncontributory defined contribution plans. The Company's policy is to fund, at a minimum, pension contributions as required by the Employee Retirement Income Security Act of 1974. Benefits are based on an employee's years of service and average earnings for the five highest consecutive years of compensation occurring during the last ten years before retirement.
The following table summarizes the funded status of the defined benefit pension plans at December 31, 1994 and 1993:
In accordance with the provisions of SFAS No. 87 "Employers' Accounting for Pensions" and SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions," the Company adjusts the discount, salary and health care cost trend rates, as well as the rates of return on assets, to reflect market conditions at the measurement date. At December 31, 1994, the Company increased the discount rate used to calculate the projected pension benefit obligation to 8.5%, reflecting the change in the interest rate environment. The increase in the discount rate had no effect on 1994 pension expense, which was $2 million compared to $1 million in 1993 and 1992. The discount rate change is expected to decrease 1995 pension expense by less than $1 million. Due to market conditions, the Company had decreased the discount rate at December 31, 1993 to 7.5% which increased 1994 pension expense by approximately $1 million. The Company also reduced the salary rate assumption from 7% to 6% at December 31, 1993, based on the Company's experience. This rate reduction had no effect on 1993 pension expense but reduced 1994 pension expense by less than $1 million.
The Company also provides health care benefits for eligible retired employees and their eligible dependents. At December 31, 1994 and 1993, $6 million and $7 million of the transition obligation remains unamortized. This obligation, under the terms of the amended healthcare plan, was calculated using relevant actuarial assumptions and health care cost trend rates projected at annual rates ranging from 11.0% in 1994 to 5.5% in 2004 and thereafter. The effect of a 1.0% annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation by approximately $1 million, while annual service and interest cost components in the aggregate would not be materially affected. Consistent with the changes in the pension plan discount rate at December 31, 1994 and 1993, the discount rate used to calculate the accumulated postretirement benefit obligation was increased to 8.5% at December 31, 1994 from 7.5% at December 31, 1993. The increase in the discount rate at December 31, 1994 had no effect on the 1994 expense and it is expected to decrease 1995 expense by less than $1 million. The decrease in the discount rate at December 31, 1993 increased 1994 expense by less than $1 million. The net postretirement benefit liability and associated expense was $1 million for the years ended December 31, 1994 and 1993, respectively.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Postretirement benefit expense was less than $.3 million for 1992, when retiree medical claims were expensed as incurred.
12. INCOME TAXES
Although the Company files a consolidated U.S. tax return with its Parent, the Company reports income tax expense as if it were a separate taxpayer and records deferred tax benefits for deductible temporary differences if it is more likely than not that these benefits will be realized. Included in income tax expense are amounts relating to the International Group, which files a separate United States federal income tax return. Income taxes paid by the International Group amounted to $1 million in 1994 and 1993.
The provision for income taxes is summarized in the following table:
In accordance with the provisions of the current tax allocation agreement, net payments of $1 million were made to the Parent in 1994 for the Company's estimated current income tax liability. In 1993 and 1992, income taxes paid amounted to $56 million and $24 million, respectively.
During 1993, the statutory federal income tax rate increased to 35% from 34%, the rate in effect for 1992. The reconciliation between the statutory federal income tax provision and the actual effective tax provision for each of the three years ended December 31 is as follows:
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax benefits of deductible temporary differences are shown net of a valuation allowance of $11 million and $13 million, respectively. The valuation allowance was reduced in 1993 and in 1994 as a result of management's increased confidence in the recognition of the benefit of deductible temporary differences.
The significant components of the deferred tax assets and deferred tax liabilities at December 31, 1994 and 1993 are shown below:
Provision has not been made for United States or additional foreign taxes on $82 million of undistributed earnings of subsidiaries outside the United States, as those earnings are intended to be reinvested. Such earnings would become taxable upon the sale or liquidation of these international operations or upon the remittance of dividends. Given the availability of foreign tax credits and various tax planning strategies, management believes any tax liability which may ultimately be paid on these earnings would be substantially less than that computed at the statutory federal income tax rate. Upon remittance, certain foreign countries impose withholding taxes that are then available, subject to certain limitations, for use as credits against the Company's U.S. tax liability, if any. The amount of withholding tax that would be payable upon remittance of the entire amount of undistributed earnings would be approximately $9 million.
During 1994, the Company utilized alternative minimum tax credit and investment tax credit carryforwards of $5 million. The Company had unused foreign tax credit carryforwards of $8 million at December 31, 1994. Due to substantial restrictions on the utilization of foreign tax credits imposed by the Tax Reform Act of 1986, the Company may not be able to utilize a significant portion of foreign tax credit carryforwards prior to expiration. Accordingly, the Company has recognized a valuation allowance equal to the amount of foreign tax credits recorded at December 31, 1994 and 1993.
13. RELATED PARTIES
Several financial, administrative or other service arrangements exist between the Company and Fuji Bank, the Parent or related affiliates. In management's opinion, the terms of these arrangements are similar to
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
those the Company would have been able to obtain in like agreements with unaffiliated entities in an arms-length transaction.
Services Provided by Fuji Bank and the Parent for the Company. Certain employees of Fuji Bank and the Parent perform managerial and administrative and other related functions for the Company. The amounts paid to Fuji Bank and the Parent for these services were $2 million and $47 million, respectively for 1994, and $2 million and $44 million for 1993. Additionally, certain subsidiaries of Fuji Bank periodically serve as managers for various offerings of the Company's debt securities and the Fuji Bank and Trust Company may act as registrar and paying agent for certain debt issuances by the Company.
Services Provided by the Company for Fuji and the Parent. The Company performs services for its affiliates and charges them for the cost of the work performed. The Company may also guarantee the obligations of its clients or the clients of certain joint ventures, under letters of credit issued by financial institutions, some of which are affiliates of the Company. The Company has agreements with the Parent and certain other subsidiaries of the Parent which provide for the Company to receive an annual negotiated fee for servicing assets which have been sold by the Company to the Parent and these affiliates. The Company continues to service these assets and all other direct costs and expenses, including any additional advances made after the date of the agreement, are borne by the subsidiaries of the Parent. The amount of fees for servicing these assets in 1994, 1993 and 1992, was approximately $2 million, $4 million and $5 million, respectively. These amounts are recorded as a reduction of operating expenses in the consolidated statements of income.
Intercompany Receivables, Transactions and Financial Instruments -- At December 31, 1994 and 1993, other assets include net amounts due from affiliates of $29 million and $31 million, respectively. The amounts are comprised principally of interest bearing demand notes representing amounts due to the Company arising from the interest rate swap agreement with the Parent, advances, administrative fees and costs charged to other subsidiaries of the Parent. The notes bear interest at rates which approximate the average rates on the Company's commercial paper obligations or short-term bank borrowing rates outstanding during the period.
In the ordinary course of its business, the Company participates in joint financings with certain affiliates. During 1994, the Company paid $17 million to repurchase loan participations which it previously sold to affiliates.
The Company is party to a $250 million interest rate swap agreement with the Parent which was amended in 1992 and expires July 31, 1995. The Company is also a party to a $200 million interest rate swap agreement with the Parent, effective January 13, 1994 which expires December 15, 2000. The purpose of the agreements is to manage the Company's exposure to interest rate fluctuations. Under these agreements, the Company pays interest to the Parent at a variable rate based on the commercial paper rate published by the Board of Governors of the Federal Reserve System and the Parent pays interest to the Company at fixed rates of 5.0% and 5.57%, respectively. The agreements had the effect of reducing the Company's interest expense by $3 million in 1994, $5 million in 1993, and $7 million in 1992.
The Company is also a party to a $25 million interest rate swap agreement with Fuji Bank, which became effective in March, 1990 and expires in February, 1995. During 1994 and 1993, $1 million was paid each year to Fuji Bank under this agreement. Additionally, the Company entered into cross-currency basis swap agreements with a subsidiary of Fuji Bank, which had the effect of converting debt denominated in Japanese yen to $148 million of U.S. currency. During 1994 and 1993, $7 million and $4 million, respectively, have been paid to Fuji Bank under these agreements.
The Company and Fuji Bank are parties to a "Keep Well Agreement," which cannot be terminated by either party prior to December 31, 2000. After December 31, 2000, either Fuji Bank or the Company may terminate the agreement upon 30 business days prior written notice. As long as the Perpetual Preferred Stock is outstanding and held by third parties other than Fuji Bank, the agreement may not be terminated by either
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
party unless the Company has received written certifications from Moody's Investors Services, Inc. and Standard and Poor's Corporation that, upon such termination, the Perpetual Preferred Stock will be rated no lower than "a3" and "A-", respectively. The Keep Well Agreement provides that if the Company should lack sufficient cash or credit facilities to meet its commercial paper obligations, Fuji Bank will lend the Company up to $500 million. That loan would be payable on demand and the proceeds from the loan could only be used by the Company to meet its commercial paper obligations. Commitment fees paid by the Company to Fuji Bank under the agreement amounted to less than $.4 million in 1994, 1993 and 1992. Interest on any loans will be charged at the prime rate of Morgan Guaranty Trust Company of New York plus .25% per annum. No loans have been made by Fuji Bank under this agreement.
Fuji Bank and one of its subsidiaries provided uncommitted lines of credit to consolidated international subsidiaries totaling $15 million and $13 million at December 31, 1994 and 1993, respectively. Borrowings under these facilities totaled $5 million and $9 million at December 31, 1994 and 1993, respectively. In addition, Fuji Bank provides uncommitted lines of credit to certain international joint ventures.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. FAIR VALUE DISCLOSURES
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information for certain financial instruments, for which it is practicable to estimate that value. These values must be estimated as there is no well established market for many of the Company's assets and financial instruments. Fair values are based on estimates using present value, property yield, historical rate of return and other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. These assumptions are inherently judgmental and changes in such assumptions could significantly affect fair value calculations. The derived fair value estimates may not be substantiated by comparison to independent markets and may not be realized in immediate liquidation of the instrument.
The book values and estimated fair market values of the Company's financial instruments at December 31, 1994 and 1993, are as follows:
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments. Carrying values approximate fair values for all financial instruments which are not specifically addressed.
For variable rate receivables that reprice frequently and have no significant credit risk, fair values were assumed to equal carrying values. All other receivables were pooled by loan type and risk rating. The fair value for these receivables was estimated by discounted cash flow analyses, using interest rates equal to the London Inter-bank Offered Rate or the Prime Rate offered as of December 31, 1994 and 1993, plus an adjustment for normal spread, credit quality and the remaining terms of the loans.
Book and fair values of the trading securities and securities available for sale are based on quoted market prices. The fair values of equity interests and other investments are calculated by first using the Company's business valuation model to determine the estimated value of these investments as of the anticipated exercise date. The business valuation model analyzes the cash flows of the related company and considers values for similar equity investments. The determined value is then discounted back to December 31, 1994 and 1993, using a rate appropriate for returns on equity investments. Although the investments in international joint ventures accounted for by the equity method are not considered financial instruments and as such are not included in the above table, management believes that the fair values of these investments significantly exceed the carrying value of these investments.
The fair values of the debt and swap agreements were estimated using discounted cash flow analyses, based on current incremental borrowing and swap rates for arrangements with similar terms and remaining maturities, as quoted by independent financial institutions as of December 31, 1994 and 1993. As market interest rates increased during 1994, the fair value of debt decreased relative to book value. Accordingly, the fair value of the interest rate swap agreements moved toward a payable position. The fair values of loan commitments, letters of credit and guarantees are negligible.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. FINANCIAL DATA BY REGION
The following table shows certain financial information by geographic region for the years ended December 31, 1994, 1993 and 1992.
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following financial information for the calendar quarters of 1994, 1993 and 1992, is unaudited. In the opinion of management, all adjustments necessary to present fairly the results of operations for such periods have been included.
Net income for the quarter ended March 31, 1992 includes $41 million of income for the cumulative effect of the recognition of a deferred tax asset resulting from the adoption of SFAS No. 109, "Accounting for Income Taxes."
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of all directors and all persons nominated or chosen to become directors and executive officers of the Company as of December 31, 1994, and a biographical summary for each such person appear in the following pages. No family relationship exists among the persons named below.
Each of the officers and directors of the Company are elected at the annual meeting for a term of one year until their successors are duly elected and qualified.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The following information is furnished as to all plan and non-plan compensation awarded to, earned by, or paid to the Chief Executive Officer of the Company and the four next most highly compensated executive officers of the Company (as determined at December 31, 1994) for services rendered in all capacities to the Company and its subsidiaries during the years ended December 31, 1994, 1993 and 1992.
SUMMARY COMPENSATION TABLE (1)(2)
- - --------------- (1) All numbers are rounded to the nearest whole dollar.
(2) Certain executive officers of the Company whose compensation is included above are employed and paid by the Parent. Pursuant to a management agreement between the Company and the Parent, the Company reimburses the Parent for their services.
(3) The cash bonus under the management incentive plan for services rendered to the Company and its subsidiaries during the year ended December 31, 1994 was not calculable as of the date of this report. Such amounts will be disclosed in the Company's annual report for the subsequent fiscal year in the appropriate column for the year in which earned. Annual bonus amounts are earned and accrued during the year shown, and paid subsequent to the end of such year.
(4) Accruals under the Company's Long Term Incentive Plans ("LTIPs") are based upon the Company's performance in one year and are not affected by the Company's performance in subsequent years. As a result, the Company reports annual accruals under its LTIPs as annual compensation as defined by the SEC. During 1994, the Company had a LTIP that commenced on January 1, 1994 and will terminate on December 31, 1996 ("1994-96 LTIP") and the Company also had a LTIP that commenced on January 1, 1992 and terminated on December 31, 1994 ("1992-94 LTIP"). Under the terms of the 1994-96 LTIP, payouts of accruals will be made after the termination of the 1994-96 LTIP to officers who are active employees of the Company and participants in the 1994-96 LTIP through its termination date (subject to exceptions in the case of disability, death or retirement). Payouts of all accruals under the 1992-94 LTIP will be made in March 1995. Accruals under the 1994-96 LTIP and 1992-94 LTIP, respectively, for calendar year 1994 were as follows: Mr. Blum, $395,034 and $415,022; Mr. Almeida, $114,513 and $114,513; Ms. Martin, $98,709 and $98,709; Mr. Vernick, $98,709 and $98,709; and Mr. Lockhart, $98,709 and $98,709.
The amount of Other Annual Compensation shown for Mr. Blum includes $1,650 reimbursed during 1994 for the payment of taxes. Perquisites and other personal benefit amounts for each of the named executive officers fall below the minimum level for disclosure and therefore have been excluded.
(5) Significant portions of the 1994, 1993 and 1992 amounts consist of special payments attributable to the performance of specific business units and investments.
(6) Amounts reported reflect the Company's contribution made in the form of a match on amounts deferred by the officer in the Company's Savings and Profit Sharing Plan, that is qualified under Section 501(a) of the Internal Revenue Code. This Plan is available to all employees who work at least 900 hours per year.
The Company makes matching contributions equal to 50% of the employee's contribution provided, however, that the Company's contribution will not exceed 2.5% of the employee's base salary.
RETIREMENT AND OTHER DEFINED BENEFIT PLANS
The Company has a defined benefit retirement income plan (the "Retirement Plan") for the benefit of its employees that is a qualified plan under Section 401 of the Internal Revenue Code of 1986 (the "Code"). Substantially all domestic employees of the Company who have one year of service, including executive officers and directors of the Company, and also certain executive officers and directors of International, participate in the Retirement Plan. Non-employee directors are not eligible for retirement benefits.
The Company adopted a Supplemental Executive Retirement Plan ("SERP"), effective October 28, 1987, which provides benefits to all officers at the level of Senior Vice President and above who participate in the Company's LTIP and the Retirement Plan, which are in excess of the limitations imposed by Sections 401(a)(17) and 415 of the Internal Revenue Code, as amended from time to time.
Under a defined benefit plan, such as the Company's, contributions are not specifically allocated to individual participants. The table below shows estimated annual retirement benefits for executives in specified remuneration and service classifications.
ESTIMATED ANNUAL RETIREMENT BENEFITS
In general, remuneration covered by the retirement plan consists of the annual base salary determined before any salary reduction contributions to the Company's Savings and Profit Sharing Plan.
The number of years of credited service as of December 31, 1994, and the actual average remuneration for their respective years of credited service with the Company for those individuals listed on the Summary Compensation Table are as follows: Michael S. Blum, $533,333, 8 years 6.5 months, Richard J. Almeida, $256,463, 7 years 5 months, Lauralee E. Martin, $204,696, 8 years 4.5 months, Mitchell F. Vernick, $208,715, 8 years 4.5 months, and Dennis P. Lockhart, $223,813, 7 years.
The figures shown in the table above include benefits payable under the SERP as described above. However, the figures shown are prior to offsets for Social Security, Retirement Plan and Company match benefits (under its Savings and Profit Sharing Plan) as specified by the SERP benefit formula. The estimates assume that benefits commence at age 65 under a straight life annuity form.
COMPENSATION OF DIRECTORS
Directors of the Company are not compensated for provision of services as a director to the Company.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Michael S. Blum has an employment contract with the Parent which expires on December 31, 1996 and provides that if his employment is terminated by the Parent without cause (as defined in the contract), or if he resigns in response to a significant diminution of his assigned duties and responsibilities by the Parent, he will be entitled to receive full salary and all executive perquisites through the later of December 31, 1996, or the last day of the twelfth month following the month in which his termination occurred (the "Cutoff Date"). He will also receive a pro rata portion of his estimated incentive plan payments for the year of termination and will continue to be covered under certain benefit plans through the Cutoff Date. If Mr. Blum's employment is terminated pursuant to either of the situations described above, he will receive 50% of his full salary from the Cutoff Date until August 30, 1998. In the event that Mr. Blum and the Parent do not reach an agreement regarding the terms of an extension or renewal of his contract, Mr. Blum is entitled to receive full salary until the later of December 31, 1996, or nine months from the date the Parent informs him that it does not intend to extend his employment and thereafter at the rate of 50% of his full salary through August 30, 1998 (subject to reduction for compensation received from another employer). Mr. Blum would also receive coverage under certain benefit plans through August 30, 1998 and perquisites through December 31, 1997.
Mitchell Vernick participates in special incentive arrangements with the Company pursuant to which he is eligible to receive payments based upon the performance of specific business units and investments.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Michael S. Blum and Tomohiro Kamio served as members of the Compensation Committee of the Board of Directors of the Company throughout calendar year 1994. Kenji Miyamoto served as a member of the Company's Compensation Committee from May 25, 1994 through December 31, 1994. Mr. Miyamoto's predecessor, Osamu Kita, served as a member of the Company's Compensation Committee from January 1, 1994 through May 25, 1994.
Mr. Blum also served as Chairman and Chief Executive Officer of the Company, and its subsidiaries, International and Holdings. In addition, Mr. Blum served as the Chairman of the Board, Chief Executive Officer and President of the Parent and served as a member of the Compensation Committee of the Parent, International, and Holdings. Messrs. Miyamoto and Kita, each also served as executive officers of the Parent during their tenure as a member of the Compensation Committee of the Company.
As identified below, several directors of the Company also served as executive officers of one or more of the other companies for whom Mr. Blum served as a member of the Compensation Committee of the Board of Directors: Mr. Almeida, Parent, International and Holdings; Mr. Fukabori, Parent; Mr. Litwin, International and Holdings; Mr. Lockhart, Parent, International and Holdings; Mr. Vernick, International and Holdings.
No other relationships exist between the members of the Compensation Committee of the Company, the Parent, International or Holdings and the directors and executive officers of those companies.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
VOTING SECURITIES
The following table sets forth the ownership of all of the outstanding common stock of the Company, as of February 1, 1995:
EQUITY SECURITIES
All of the outstanding common stock of the Parent is owned by Fuji Bank. As of December 31, 1994, certain directors and executive officers of the Company owned beneficially certain amounts of Fuji Bank's common stock, all as indicated below.
In addition, Messrs. Fukabori, Ishikawa, Itosaka, Miyamoto, Ogura, Takano, Watanabe and Yamamoto participate in a Fuji Bank employee stock purchase plan and, as of December 31, 1994, beneficially held a total of approximately 35,469 shares.
The aggregate number of shares of Fuji Bank common stock that are beneficially owned by the Company's directors and officers, considered as a group, including those shares held in the Fuji Bank employee stock purchase plan, does not exceed 1% of the outstanding shares of such stock.
The following table sets forth the ownership by all directors, nominees and executive officers, of all outstanding equity securities of the Company, and its subsidiaries, as of February 1, 1995:
- - --------------- (a) The aggregate number of shares of 8 1/8% Cumulative Perpetual Senior Preferred Stock, Series A that were beneficially owned did not exceed 1% of the outstanding shares of such stock.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
KEEP WELL AGREEMENT WITH FUJI BANK
The Company entered into a Keep Well Agreement (the "Agreement") with Fuji Bank on April 23, 1983 in order to assist the Company in maintaining its credit rating. The Agreement was amended and supplemented on January 26, 1984, in connection with the consummation of the purchase of the Company by Fuji Bank and has been amended since that date from time to time.
The Agreement provides that Fuji Bank will maintain the Company's net worth in an amount equal to $500 million. Accordingly, if the Company should determine, at the close of any month, that its net worth is less than $500 million, then Fuji Bank will purchase, or cause one of its subsidiaries to purchase, shares of the Company's NW Preferred Stock, Class B (No Par Value) ("NW Preferred Stock") in an amount necessary to increase the Company's net worth to $500 million. If and when issued, dividends will be paid quarterly on the NW Preferred Stock at a rate per annum equal to 1% over the three-month London Inter-bank Offered Rate. Such dividends will not be paid during a default in the payment of principal or interest on any of the outstanding indebtedness for money borrowed by the Company. Subject to certain conditions, the NW Preferred Stock will be redeemable at the option of the holder, within a specified period of time after the end of a calendar quarter in an aggregate amount not greater than the excess of net worth of the Company as of the end of such calendar quarter over $500 million.
The Agreement further provides that if the Company should lack sufficient cash, other liquid assets or credit facilities to meet its payment obligations on its commercial paper, then Fuji Bank will lend the Company up to $500 million (the "Liquidity Commitment"), payable on demand, which the Company may use only for the purpose of meeting such payment obligations. Any such loan by Fuji Bank to the Company (a "Liquidity Advance") will bear interest at a fluctuating interest rate per annum equal to the announced prime commercial lending rate of Morgan Guaranty Trust Company of New York plus .25% per annum. Each Liquidity Advance will be repayable on demand at any time after the business day following the 29th day after such Liquidity Advance was made. No repayment of the Liquidity Advance will be made during a period of default in the payment of the Company's senior indebtedness for borrowed money.
No Liquidity Advances or purchases of NW Preferred Stock have been made by Fuji Bank under the Agreement; other infusions of capital in the Company have been made by International.
Under the Agreement, the Company has covenanted to maintain, and Fuji Bank has undertaken to assure that the Company will maintain, unused short-term lines of credit and committed credit facilities in an amount approximately equal to 75% of the amount of its commercial paper obligations from time to time outstanding. In addition, under the Agreement, neither Fuji Bank nor any of its subsidiaries can sell, pledge or otherwise dispose of any shares of the Company's Common Stock or permit the Company to issue shares of its Common Stock except to Fuji Bank or a Fuji Bank affiliate.
Neither Fuji Bank nor the Company may terminate the Agreement for any reason prior to December 31, 2000. After December 31, 2000 either Fuji Bank or the Company may terminate the Agreement upon 30 business days' prior written notice. So long as the Perpetual Preferred Stock is outstanding and held by third parties other than Fuji Bank, the Agreement may not be terminated by either party unless the Company has received written certifications from Moody's Investors Services, Inc. and Standard and Poor's Corporation that upon termination the Perpetual Preferred Stock will be rated by them no lower than "a3" and A-, respectively. For these purposes the Preferred Stock will no longer be deemed outstanding at such time as an effective notice of redemption of all of the Preferred Stock shall have been given by the Company and funds sufficient to effectuate such redemption shall have been deposited with the party designated for such purpose in the notice. In addition, any termination of the Keep Well Agreement by the Company must be consented to by Fuji Bank. Any such termination will not relieve the Company of its obligations in respect of any NW Preferred Stock outstanding on the date of termination or the dividends thereon, any amounts owed in respect of Liquidity Advances on the date of termination or the unpaid principal or interest on those Advances or Fuji Bank's fee relating to the Liquidity Commitment. Any such termination will not adversely affect the Company's commercial paper obligations outstanding on the date of termination. The Agreement can be modified or amended by a written agreement of Fuji Bank and the Company. However, no such modification or amendment may change the prohibition against termination before December 31, 2000. Further, no such modification or amendment may adversely affect the Company's then-outstanding commercial paper obligations.
Under the Agreement, the Company's commercial paper obligations and any other debt instruments are solely the obligations of the Company. The Agreement is not a guarantee by Fuji Bank of the payment of the Company's commercial paper obligations, indebtedness, liabilities or obligations of any kind.
TAX ALLOCATION AGREEMENTS
Under the terms of the tax allocation agreement between the Parent and the Company, as amended, each company covered by the agreement calculates its current and deferred income taxes based on its separate company taxable income or loss, utilizing separate company net operating losses, tax credits, capital losses and deferred tax assets or liabilities. Under the terms of other tax allocation agreements with certain of the Company's subsidiaries, the Company and the Parent, in calculating their current income taxes, can utilize the taxable income or loss of the subsidiaries.
CERTAIN TRANSACTIONS WITH FUJI BANK AND WITH THE PARENT AND ITS SUBSIDIARIES
Services Provided by Fuji Bank and the Parent for the Company. Certain employees of Fuji Bank and the Parent perform managerial, administrative and other related functions for the Company. The Company compensates Fuji Bank and the Parent for the use of such individuals' services at a rate which reflects current costs to Fuji Bank and the Parent. The amounts paid to Fuji Bank and the Parent for these services in 1994 were $2 million and $47 million respectively. Additionally, certain subsidiaries of Fuji Bank periodically serve as managers for various offerings of the Company's debt securities and the Fuji Bank and Trust Company may act as registrar and paying agent for certain debt issuances by the Company.
Services Provided by the Company for Affiliates. The Company performs services for its affiliates and charges them for the cost of the work performed. The Company may also guarantee the obligations of its clients or the clients of certain joint ventures under letters of credit issued by financial institutions, some of which are affiliates of the Company. The Company has agreements with the Parent and certain other subsidiaries of the Parent which provide for the Company to receive an annual negotiated fee for servicing assets which have been sold by the company to the Parent and these affiliates. The Company continues to service these assets and all other direct costs and expenses, including any additional advances made after the date of the agreement, are borne by the subsidiaries of the Parent. The amount of fees for servicing these assets in 1994 was approximately $2 million. Heller Capital Markets Group, Inc. ("CMG"), a wholly-owned subsidiary of the Company, acts as placement agent for the sale of commercial paper issued by the Parent. CMG receives compensation, based upon the face amount of the commercial paper notes sold. For the year ending December 31, 1994, the Parent paid $.3 million to CMG as compensation pursuant to this arrangement. Management believes the terms of this arrangement are similar to those which might apply in any similar arrangement among unaffiliated parties.
Financial Transactions. In the ordinary course of its business, the Company participates in joint financings with certain affiliates. During 1994, the Company paid $17 million to repurchase loan participations which it previously sold to affiliates. The Company believes that these joint financings with affiliates are on terms similar to those available from unaffiliated financial institutions and the amount paid represents the fair market value of these assets as determined by management.
Intercompany Receivables and Financial Instruments. At December 31, 1994, net amounts due from affiliates was $29 million. The amounts are comprised principally of interest bearing demand notes representing amounts due to the Company arising from the interest rate swap agreement with the Parent, advances, administrative fees and costs charged to other subsidiaries of the Parent. The notes bear interest at rates which approximate the average rates on the Company's commercial paper obligations or short-term bank borrowing rates outstanding during the period.
The Company is a party to a master swap agreement with its Parent. The Company and its Parent have entered into two swap transactions under that agreement. The first is a $250 million swap, which was initially entered into in 1985, and was last amended in 1992, in part, to extend the term through July 31, 1995 ("1985 agreement"). The second was a $200 million swap transaction, which commenced on January 13, 1994 and expires on December 15, 2000 (individually the "1994 agreement", collectively with the 1985 agreement the "agreements"). The purpose of the agreements is to manage the Company's exposure to interest rate fluctuations. Under the provisions of these agreements, the Company pays interest to the Parent at a variable rate based on the commercial paper rate published by the Board of Governors of the Federal Reserve System and the Parent pays interest to the Company at a fixed rate of 5.0% and 5.57% under the 1985 and 1994 swap agreements, respectively. The fixed rate was determined based upon prevailing market rates for such transactions at the time of such swap. The agreements had the effect of reducing the Company's interest expense by $3 million in 1994.
The Company is also a party to a $25 million interest rate swap agreement with Fuji Bank which became effective in March 1990 and expires in February 1995. During 1994, $1 million had been paid to Fuji Bank under this Agreement. Additionally, the Company entered into cross-currency basis swap agreements with a subsidiary of Fuji Bank which had the effect of converting debt denominated in Japanese Yen to $148 million of U.S. currency. During 1994, $7 million had been paid to Fuji Bank under these agreements.
On February 15, 1985, the Company issued to the Parent 1,000 shares of previously subscribed Cumulative Convertible Preferred Stock, Series D (No Par Value) ("Convertible Preferred Stock"), which has a dividend yield established quarterly at the rate of 1/2% under the announced prime commercial lending rate of Morgan Guaranty Trust Company of New York, cumulative from March 30, 1984 and payable quarterly commencing on March 31, 1989. During 1994, the Company declared and paid $1.5 million of dividends on the Convertible Preferred Stock. The Convertible Preferred Stock is convertible into Common Stock of the Company at the conversion price of one share of Common Stock for each 200 shares of Convertible Preferred Stock. Subject to certain conditions, the Convertible Preferred Stock is redeemable, in whole or in part, at any time at the option of the Company at a redemption price equal to the price paid for such stock plus accumulated dividends. Upon voluntary or involuntary liquidation, the holder of the Convertible Preferred Stock is entitled to be paid an amount equal to the price paid for each share plus accumulated dividends.
CERTAIN OTHER RELATIONSHIPS
Certain subsidiaries of Fuji Bank serve as managers for various offerings of the Company's debt securities. The fees paid by the Company are similar to those the Company would pay an unaffiliated agent in an arms-length transaction. The Fuji Bank and Trust Company acts as registrar and paying agent for various debt issuances by the Company. Mr. Kessel, a director of the Company and Parent, is a partner of the law firm of Shearman & Sterling which from time to time acts as counsel in certain matters for Fuji Bank and the Company.
Financial Instruments. On March 30, 1994, the Company entered into a receivables purchase agreement with Freedom Asset Funding Corporation ("Freedom"), which replaced the Dynamic Funding agreement. Under this agreement, which expires March 24, 1999, the Company may sell to Freedom with limited recourse an undivided interest of up to $500 million in a designated pool of its factored accounts receivable. As of December 31, 1994, the Company had sold a $6 million interest to Freedom for cash. Freedom has entered into a revolving liquidity facility and an operating agreement with Fuji Bank and one of its affiliates.
Fuji Bank and one of its subsidiaries provided uncommitted lines of credit to consolidated international subsidiaries totaling $15 million at December 31, 1994. Borrowings under these facilities totaled $5 million at December 31, 1994. In addition, Fuji Bank provides uncommitted line of credit to certain international joint ventures.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of This Report:
1. Financial Statements:
Heller Financial, Inc. and Subsidiaries --
Report of Independent Public Accountants -- Arthur Andersen LLP
Consolidated Balance Sheets -- December 31, 1994 and 1993
Consolidated Statements of Income for the Years Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
Schedule II -- Heller Financial, Inc. Amounts Receivable From Employees Other Than Related Parties.
All other schedules are omitted because they are not applicable or because the required information appears in the financial statements or the notes thereto.
3. Exhibits:
- - ---------------
* Filed herewith.
Instruments defining the rights of holders of certain issues of long-term debt of the Company have not been filed as exhibits to this Report because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of the Company. In accordance with paragraph (b)(4)(iii) of Item 601 of Regulation S-K, the Company hereby agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each instrument that defines the rights of holders of the Company's long-term debt.
(b) Current Reports on Form 8-K:
During the fourth quarter of 1994, the Company filed Current Reports on Form 8-K dated October 27, 1994 and November 1, 1994.
On January 30, 1995, the Company filed with the U.S. Securities and Exchange Commission a Current Report on Form 8-K, dated January 27, 1995, to announce the Company's earnings for the year ended December 31, 1994.
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.
Heller Financial, Inc.
By MICHAEL S. BLUM Michael S. Blum (Chairman and Chief Executive Officer)
Dated: February 6, 1995
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 IN THE CAPACITIES AND ON THE DATE INDICATED.
Dated: February 6, 1995
SCHEDULE II
HELLER FINANCIAL, INC. AMOUNTS RECEIVABLE FROM EMPLOYEES OTHER THAN RELATED PARTIES
- - --------------- (a) Bridge loan.
(b) The amounts relate to mortgage receivables which are denominated in Singapore dollars.
(c) The amounts relate to car loan receivables which are denominated in Singapore dollars.
INDEX TO EXHIBITS
* Filed herewith.