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 March 31, 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 May 13, 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.
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USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
I N D E X
Page No.
Part I - Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets --
March 31, 1994 and December 31, 1993. . . . 3
Consolidated Statements of Income --
Three months ended March 31, 1994 and 1993. 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 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
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USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
(In thousands) 1994 1993
ASSETS
Cash and equivalents $ 11,209 $ 6,708
Investment in finance leases - net 2,309,208 2,364,062
Notes receivable 717,288 721,257
Investment in operating leases - net 684,534 694,737
Investment in leveraged leases 188,098 190,502
Investment in securities 581,940 562,873
Inventory held for sale or lease 57,681 54,811
Other receivables 12,758 18,296
Investment in associated companies 18,246 18,357
Office facilities at cost less
accumulated depreciation 7,879 8,386
Goodwill 187,778 189,239
Other assets 23,608 21,981
Total assets $4,800,227 $4,851,209
LIABILITIES
Short-term notes payable $1,055,759 $ 985,277
Accounts payable 29,788 65,643
Accrued liabilities and lease deposits 123,561 120,416
Payable to Ford and affiliates 46,680 79,490
Deferred taxes on income 325,777 314,505
Long-term debt 2,460,978 2,548,250
Total liabilities 4,042,543 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 (983) -
Retained earnings 237,242 216,203
Total shareholder's equity 757,684 737,628
Total liabilities and
shareholder's equity $4,800,227 $4,851,209
*Less than one thousand dollars
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
(Unaudited; in thousands) 1994 1993
REVENUES $143,011 $132,477
EXPENSES
Sales, administrative and general 16,733 17,599
Interest 52,291 43,709
Depreciation -- operating leases 32,575 34,874
Other 10,579 11,174
Total expenses 112,178 107,356
Income before taxes on income 30,833 25,121
Taxes on income 9,794 8,264
NET INCOME $ 21,039 $ 16,857
See NOTES TO CONSENSED CONSOLIDATED FINANCIAL STATEMENTS.
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USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
(Unaudited; in thousands) 1994 1993
Net cash flow from operating activities $ 15,114 $ 22,055
CASH FLOWS FROM INVESTING ACTIVITIES
Recovery of equipment costs and residual interests 163,442 157,173
Proceeds from sale of finance receivables 37,543 21,775
Cost of equipment acquired for lease (173,986) (350,213)
Notes receivable investments (13,398) (47,666)
Collections on notes receivable investments 12,422 26,110
Purchase of held-to-maturity securities (10,349) -
Maturity of held-to-maturity securities 937 -
Purchase of available-for-sale securities (6,420) -
Sale and maturity of available-for-sale securities 366 -
Purchase of investment securities - (29,741)
Sale of investment securities - 13
Increase in deferred initial direct costs (843) (1,036)
Other (3,329) 549
Net cash (used)/provided by investing activities 6,385 (223,036)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 2,766 299,539
Long-term debt repaid (90,246) (50,182)
Net increase/(decrease) in short-term borrowings 70,482 (38,632)
Net cash (used)/provided by financing activities (16,998) 210,725
Increase in cash and equivalents 4,501 9,744
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 6,708 5,001
CASH AND EQUIVALENTS AT END OF PERIOD $ 11,209 $ 14,745
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Interest paid $ 40,355 $ 29,120
Income taxes paid 158 159
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
None
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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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.
<PAGE>
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
Three Months Ended 1994 vs. 1993
March 31, Increase/(Decrease)
(In thousands) 1994 1993 Amount %
Revenues $143,011 $132,477 $ 10,534 8%
Expenses
Sales, admin. & general 16,733 17,599 (866) (5)
Interest 52,291 43,709 8,582 20
Depreciation 32,575 34,874 (2,299) (7)
Other expenses 10,579 11,174 (595) (5)
Total expenses 112,178 107,356 4,822 4
Operating Profit $ 30,833 $ 25,121 $ 5,712 23%
Revenues
Consolidated revenues increased $10.5 million or 8% during the first three
months of 1994 reflecting a 25% increase in average earning assets. This
increase was partially offset by a decrease in revenue yields relating to the
general decline in interest rates and a decrease of $2.6 million in the gain
on sale of residuals and equipment.
Expenses
Total expenses for the first quarter of 1994 increased $4.8 million or
4%, and are discussed below.
Sales, administrative and general expenses decreased $866,000 or 5% in the
first three months of 1994 compared with the 1993 three-month period. The
decrease primarily is a result of cost reduction actions.
Interest expense increased $8.6 million or 20% for the three-month period,
reflecting an increase in average borrowings from $2.86 billion in 1993 to
$3.53 billion in 1994 to finance earning assets. This increase was offset in
part by a decline in borrowing rates, which averaged 5.9% in the first three
months of 1994 compared to 6.1% in 1993.
<PAGE>
Depreciation expense on operating lease equipment decreased $2.3 million
or 7% in the 1994 three-month period, although the average investment in the
cost of operating lease equipment increased 12% or $107 million during the
period. This increase in equipment cost primarily reflects the addition of
approximately $116 million in the Rail Services business at the end of
February 1993, with an average life of 16 years, offset in part by a decline
in operating lease equipment in the Fleet Services business. The reduction
in depreciation expense is the result of the shift to the longer depreciable
life rail car assets and certain Fleet assets becoming fully depreciated.
Other expenses decreased $595,000 or 5% in the 1994 first three 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 three
months improved $5.7 million or 23% compared with 1993 results.
Taxes on income
Income tax expense was 31.8% of income before taxes in the 1994 three-month
period compared with 32.9% in the same 1993 period. The decrease from 1993 is
primarily a result of an increase in income exempt from Federal taxes, offset
in part by the 1993 1% U.S. Corporate tax rate increase which was effective
as of January 1, but was not enacted until the third quarter of 1993.
<PAGE>
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:
Three Months Ended Twelve Months Ended
March 31, December 31,
1994 1993 1993
Allowance for doubtful accounts (millions)
Beginning balance $54.5 $ 39.9 $ 39.9
Additions 3.8 4.4 24.4
Deductions (1.4) (1.9) (9.8)
Ending balance $ 56.9 $ 42.4 $ 54.5
Percent of earning assets 1.2% 1.1% 1.2%
Total balances of accounts
receivable over 90 days past
due at period end (millions) $46.4 $ 43.6 $ 44.3
Percentage of earning assets 1.0% 1.2% 1.0%
Total earning assets (millions)
Investment in finance
leases - net $2,309.2 $2,060.2 $2,364.1
Investment in operating
leases - net 684.5 670.0 694.7
Investment in leveraged leases 188.1 45.5 190.5
Notes receivable 717.3 521.6 721.3
Investment in securities 581.9 363.5 562.9
Inventory held for sale
or lease 57.7 89.0 54.8
Investment in associated
companies 18.3 19.6 18.3
Total $4,557.0 $3,769.4 $4,606.6
Since December 31, 1993, accounts receivable over 90 days past due increased
$2.1 million. Included in the balance at both December 31, 1993 and March 31,
1994 is a delinquent note in the amount of $8.7 million, collateralized by an
office complex, for which the Company is currently pursuing a judicial
foreclosure.
<PAGE>
Earning assets by business unit
The table below summarizes the earning assets by business unit as a
percentage of the total.
March 31, December 31,
1994 1993 1993
Business Equipment Financing 30% 35% 32%
Transportation and Industrial Financing 24 22 24
Fleet Services 10 12 10
Municipal and Corporate Financing 17 11 16
Real Estate Financing 10 9 9
Rail Services 9 11 9
Total 100% 100% 100%
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12. Computation of ratio of earnings to fixed charges.
(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.
<PAGE>
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
May 13, 1994 By: /s/ George F. Stallos
Date George F. Stallos
Executive Vice President
and Chief Financial Officer
May 13, 1994 By: /s/ Robert A. Keyes, Jr.
Date Robert A. Keyes, Jr.
Corporate Controller
Exhibit 12
<PAGE>
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended
March 31,
(Unaudited; in thousands) 1994 1993
Earnings:
Income before taxes on income
per statement of income . . . . . . . $ 30,833 $ 25,121
Add
Fixed charges . . . . . . . . . . . . 53,105 44,716
Distributions and proceeds in excess of
net income of associated companies . 112 120
Income as adjusted . . . . . . . . . . $ 84,050 $ 69,957
Fixed charges:
Interest on indebtedness including
amortization of debt issue costs and
discount or premium thereon . . . . . $ 52,291 $ 43,709
Interest factor of annual rentals (1) 814 1,007
Fixed charges. . . . . . . . . . . . . $ 53,105 $ 44,716
Ratio of earnings to fixed charges . . 1.6 1.6
(1) The interest portion of annual rentals is estimated to be one-third of
such rentals.
