<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1994
Commission file number 1-4976
USL Capital Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-1360891
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
733 Front Street, San Francisco, California 94111
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(415) 627-9000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ /No/
--- ---
As of November 4, 1994, the Registrant had outstanding 10 shares of
Common Stock, all of which were owned by Ford Holdings, Inc.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H(1)(a) AND (b), AND IS THEREFORE FILING THIS FORM 10-Q WITH REDUCED DISCLOSURE
FORMAT.
<PAGE> 2
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
I N D E X
Part I - Financial Information:
<TABLE>
<CAPTION> Page No.
<S> <C> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets --
September 30, 1994 and December 31, 1993 . . . . . . . . . . . . . 3
Consolidated Statements of Income --
Three and nine months ended September 30, 1994 and 1993 . . . . . 4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1994 and 1993 . . . . . . . . . . 5
Notes to Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . 7
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
(In thousands) 1994 1993
---- ----
<S> <C> <C>
ASSETS
Cash and equivalents $ 8,131 $ 6,708
Investment in finance leases 2,300,904 2,364,062
Notes receivable 728,589 721,257
Investment in operating leases 698,789 694,737
Investment in leveraged leases 229,336 190,502
Investment in securities 630,105 562,873
Inventory held for sale or lease 72,696 54,811
Other receivables 13,014 18,296
Investment in associated companies 18,016 18,357
Office facilities at cost less accumulated depreciation 8,988 8,386
Goodwill 184,856 189,239
Other assets 20,152 21,981
---------- ----------
Total assets $4,913,576 $4,851,209
========== ==========
LIABILITIES
Short-term notes payable $1,044,052 $ 985,277
Accounts payable 34,087 65,643
Accrued liabilities and lease deposits 122,878 120,416
Payable to Ford and affiliates 45,588 79,490
Deferred taxes on income 383,891 314,505
Long-term debt 2,473,768 2,548,250
---------- ----------
Total liabilities 4,104,264 4,113,581
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDER'S EQUITY
Common stock * *
Additional capital 521,425 521,425
Net unrealized gain/(loss) on available-for-sale securities (2,948) -
Retained earnings 290,835 216,203
---------- ----------
Total shareholder's equity 809,312 737,628
---------- ----------
Total liabilities and shareholder's equity $4,913,576 $4,851,209
========== ==========
*Less than one thousand dollars
- - ---------------------------------------------------------------------------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
3
<PAGE> 4
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited; in thousands) 1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $149,058 $141,997 $441,510 $411,023
-------- -------- -------- --------
EXPENSES
Sales, administrative and general 15,913 17,140 47,715 49,683
Interest 55,503 48,954 160,793 139,332
Depreciation -- operating leases 29,149 30,691 93,233 98,195
Other 9,602 11,853 30,271 37,153
-------- -------- -------- --------
Total expenses 110,167 108,638 332,012 324,363
-------- -------- -------- --------
Income before taxes on income 38,891 33,359 109,498 86,660
Taxes on income 12,233 16,707 34,866 33,562
-------- -------- -------- --------
NET INCOME $ 26,658 $ 16,652 $ 74,632 $ 53,098
======== ======== ======== ========
- - -------------------------------------------------------------------------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
4
<PAGE> 5
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(Unaudited; in thousands) 1994 1993
---- ----
<S> <C> <C>
Net cash flow from operating activities $ 212,099 $ 195,743
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Recovery of equipment costs and residual interests 472,987 443,562
Proceeds from sale of finance receivables 67,581 84,645
Cost of equipment acquired for lease (621,265) (1,031,303)
Notes receivable investments (154,642) (222,697)
Collections on notes receivable investments 111,063 74,345
Purchase of held-to-maturity securities (66,555) -
Maturity of held-to-maturity securities 27,620 -
Purchase of available-for-sale securities (28,922) -
Sale and maturity of available-for-sale securities 7,257 -
Purchase of investment securities - (218,389)
Sale of investment securities - 13,856
Increase in deferred initial direct costs (3,894) (6,025)
Other (5,572) 527
---------- -----------
Net cash used by investing activities (194,342) (861,479)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 112,592 650,736
Long-term debt repaid (187,662) (217,096)
Net increase in short-term borrowings 58,736 195,974
Capital contribution from Ford Holdings - 40,000
---------- -----------
Net cash (used)/provided by financing activities (16,334) 669,614
---------- -----------
Increase in cash and equivalents 1,423 3,878
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 6,708 5,001
---------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 8,131 $ 8,879
========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Interest paid $ 150,219 $ 124,914
Income taxes paid 517 250
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
None
- - ------------------------------------------------------------------------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
5
<PAGE> 6
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary to a fair statement of the results for the
interim periods. The results of operations for such interim periods are not
necessarily indicative of results of operations for a full year. The December
31, 1993 consolidated balance sheet included herein is derived from the audited
financial statements included in the Company's annual report on Form 10-K for
the year ended December 31, 1993, but does not include all disclosures required
by generally accepted accounting principles. The statements should be read in
conjunction with the significant accounting policies and notes to consolidated
financial statements included in the Form 10-K for the year ended December 31,
1993. Certain amounts have been reclassified to conform to the 1994
presentation.
The Company is a wholly-owned subsidiary of Ford Holdings, Inc., the
common stock of which is owned by Ford Motor Company ("Ford") and Ford Motor
Credit Company, a wholly-owned subsidiary of Ford.
2. INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", effective January 1, 1994. The effect on the Company's financial
statements was not material.
6
<PAGE> 7
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pursuant to General Instructions H(2)(a), the following narrative
analysis is presented in lieu of Management's Discussion and Analysis of
Financial Condition and Results of Operations.
RESULTS OF OPERATIONS
Revenues, Expenses and Operating Profit
<TABLE>
<CAPTION>
Nine Months Ended 1994 vs. 1993
September 30, Increase/(Decrease)
--------------------- -------------------
(In thousands) 1994 1993 Amount %
---- ---- ------ -----
<S> <C> <C> <C> <C>
Revenues $441,510 $411,023 $30,487 7%
-------- -------- ------- ---
Expenses
Sales, admin. & general 47,715 49,683 (1,968) (4)
Interest 160,793 139,332 21,461 15
Depreciation 93,233 98,195 (4,962) (5)
Other expenses 30,271 37,153 (6,882) (19)
-------- -------- ------- ---
Total expenses 332,012 324,363 7,649 2
-------- -------- ------- ---
Operating Profit $109,498 $ 86,660 $22,838 26%
======== ======== ======= ===
</TABLE>
Revenues
Consolidated revenues increased $30.5 million or 7% during the first nine
months of 1994 reflecting a 17% increase in average earning assets. This
increase was partially offset by a decrease of $6.0 million in the gain on sale
of equipment.
Expenses
Total expenses for the first nine months of 1994 increased $7.6 million
or 2%, and are discussed below.
Sales, administrative and general expenses decreased $2.0 million or 4%
in the first nine months of 1994 compared with the 1993 nine-month period. The
decrease primarily is a result of cost reduction actions.
Interest expense increased $21.5 million or 15% for the nine-month
period, reflecting an increase in average borrowings from $3.06 billion in 1993
to $3.52 billion in 1994 to finance earning assets.
7
<PAGE> 8
Depreciation expense on operating lease equipment decreased $5.0 million
or 5% in the 1994 nine-month period, although the average investment in the
cost of operating lease equipment increased 8% or $76 million during the
period. The reduction in depreciation expense is the result of the run-off of
the higher depreciation rate Fleet Services assets and the expected declining
usage of equipment contained in a copier portfolio in which depreciation is
based upon the physical use of the assets, offset in part by an increase in
longer-lived Rail Services assets.
Other expenses decreased $6.9 million or 19% in the 1994 first nine
months primarily due to a decrease in the provision for losses (see Credit loss
experience).
Income before taxes on income
Based upon the discussion above, operating profit for the first nine
months improved $22.8 million or 26% compared with 1993 results.
Taxes on income
Income tax expense was 31.8% of income before taxes in the 1994
nine-month period compared with 38.7% in the same 1993 period. The 1993
expense includes $5.6 million for the one-time charge to restate the December
31, 1992 deferred tax assets and liabilities, resulting from the 1993 1% U. S.
Corporate tax rate increase. Exclusive of this adjustment, income tax expense
was 32.3% of income before taxes in the 1993 nine-month period. The decrease
in 1994 from 32.3% to 31.8% of income before taxes is a result of an increase
in income exempt from Federal taxes.
8
<PAGE> 9
GENERAL
Credit loss experience
The management of credit exposure is an important element of the
Company's business. The Company reviews the credit of all prospective
customers, and manages concentration exposures by customer, collateral type,
and geographic distribution. It establishes appropriate loss allowances based
on the credit characteristics and the loss experience for each type of
business, and also establishes additional reserves for specific transactions if
it believes this action is warranted. Delinquent receivables are reviewed by
management monthly, and generally are written down to expected realizable value
when, in the opinion of management, they become uncollectible or when they
become more than 180 days past due. Collection activities continue on accounts
written off when management believes such action is warranted.
The table below shows certain information on the Company's allowance for
doubtful accounts related to earning assets for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
September 30, December 31,
---------------------- ----------------------
1994 1993 1993
---- ---- ----
<S> <C> <C> <C>
Allowance for doubtful accounts (millions)
Beginning balance $ 54.5 $ 39.9 $ 39.9
Additions 9.4 17.0 24.4
Deductions (4.5) (8.3) (9.8)
-------- -------- --------
Ending balance $ 59.4 $ 48.6 $ 54.5
======== ======== ========
Percent of earning assets 1.3% 1.1% 1.2%
Total balances of accounts receivable over
90 days past due at period end (millions) $ 32.5 $ 43.4 $ 44.3
Percentage of earning assets 0.7% 1.0% 1.0%
Total earning assets (millions)
Investment in finance leases $2,300.9 $2,305.0 $2,364.1
Investment in operating leases 698.8 652.5 694.7
Investment in leveraged leases 229.3 77.0 190.5
Notes receivable 728.6 675.1 721.3
Investment in securities 630.1 526.4 562.9
Inventory held for sale or lease 72.7 96.3 54.8
Investment in associated companies 18.0 19.6 18.3
-------- -------- --------
Total $4,678.4 $4,351.9 $4,606.6
======== ======== ========
</TABLE>
Since December 31, 1993, accounts receivable over 90 days past due
decreased $11.8 million, primarily because of improved collection on aged
accounts. Delinquencies were reduced as a result of the completion of
foreclosure on an apartment complex, which was collateral for an $11.2 million
note which was delinquent at December 31, 1993, offset in part by a $10.5
million note, collateralized by an office/retail complex in California, which
became delinquent in the 1994 second quarter. Management restructured the
$10.5 million note in October 1994, making it no longer delinquent.
9
<PAGE> 10
Earning assets by business unit
The table below summarizes the earning assets by business unit as a
percentage of the total.
<TABLE>
<CAPTION>
September 30, December 31,
------------------- ------------
1994 1993 1993
---- ---- ----
<S> <C> <C> <C>
Business Equipment Financing 29% 31% 32%
Transportation and Industrial Financing 24 24 24
Fleet Services 11 10 10
Municipal and Corporate Financing 17 16 16
Real Estate Financing 9 9 9
Rail Services 10 10 9
---- --- ----
Total 100% 100% 100%
==== ==== ====
</TABLE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12. Computation of ratio of earnings to fixed charges.
27. Financial Data Schedule
(b) Reports on Form 8-K.
There were no Form 8-K reports required to be filed during the quarter
for which this report is filed.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
USL CAPITAL CORPORATION
November 4, 1994 By: /s/George F. Stallos
- - ----------------------- ------------------------------------
Date George F. Stallos
Executive Vice President
and Chief Financial Officer
November 4, 1994 By: /s/Robert A. Keyes, Jr.
- - ----------------------- ------------------------------------
Date Robert A. Keyes, Jr.
Vice President, Corporate Controller
11
<PAGE> 12
Exhibit Index
12. Computation of ratio of earnings to fixed charges.
27. Financial Data Schedule
<PAGE> 1
Exhibit 12
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited; in thousands) 1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings:
Income before taxes on income
per statement of income . . . . . . . . . . . . $38,891 $33,359 $109,498 $ 86,660
Add
Fixed charges . . . . . . . . . . . . . . . . . 56,362 49,799 163,152 142,257
Distributions and proceeds in excess of
(less than) net income of associated
companies 125 73 341 126
------- ------- -------- --------
Income as adjusted . . . . . . . . . . . . . . . . $95,378 $83,231 $272,991 $229,043
======= ======= ======== ========
Fixed charges:
Interest on indebtedness including
amortization of debt issue costs and
discount or premium thereon . . . . . . . . . . $55,503 $48,954 $160,793 $139,332
Interest factor of annual rentals (1) . . . . . . 859 845 2,359 2,925
------- ------- -------- --------
Fixed charges . . . . . . . . . . . . . . . . . . . $56,362 $49,799 $163,152 $142,257
======= ======= ======== ========
Ratio of earnings to fixed charges . . . . . . . . 1.7 1.7 1.7 1.6
======= ======= ======== ========
</TABLE>
(1) The interest portion of annual rentals is estimated to be one-third of such
rentals.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 8,131
<SECURITIES> 630,105
<RECEIVABLES> 3,970,632
<ALLOWANCES> 59,414
<INVENTORY> 72,696
<CURRENT-ASSETS> 0
<PP&E> 8,988
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,913,576
<CURRENT-LIABILITIES> 0
<BONDS> 3,517,820
<COMMON> 0
0
0
<OTHER-SE> 809,312
<TOTAL-LIABILITY-AND-EQUITY> 4,913,576
<SALES> 441,510
<TOTAL-REVENUES> 441,510
<CGS> 0
<TOTAL-COSTS> 114,130
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,374
<INTEREST-EXPENSE> 160,793
<INCOME-PRETAX> 109,498
<INCOME-TAX> 34,866
<INCOME-CONTINUING> 74,632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,632
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
