<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 June 30, 1995
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 August 2, 1995, 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
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Part I -- Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets --
June 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income --
Three and Six months ended June 30, 1995 and 1994 . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . 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)
JUNE 30, DECEMBER 31,
(In thousands) 1995 1994
----------- ------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 11,107 $ 16,226
Investment in finance leases 2,458,087 2,435,429
Notes receivable 836,152 824,619
Investment in operating leases 734,857 711,602
Investment in leveraged leases 318,558 266,392
Investment in securities 798,917 700,355
Inventory held for sale or lease 85,453 86,816
Other receivables 15,373 18,335
Investment in associated companies 17,626 17,838
Office facilities at cost less accumulated depreciation 8,238 8,772
Goodwill 180,473 183,395
Other assets 19,040 20,439
---------- ----------
Total assets $5,483,881 $5,290,218
========== ==========
LIABILITIES
Short-term notes payable $1,368,617 $1,337,601
Accounts payable 24,222 58,078
Accrued liabilities and lease deposits 108,727 113,847
Payable to Ford and affiliates 52,782 134,763
Deferred taxes on income 456,042 424,301
Long-term debt 2,672,529 2,478,547
---------- ----------
Total liabilities 4,682,919 4,547,137
---------- ----------
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDER'S EQUITY
Common stock * *
Additional capital 521,425 521,425
Net unrealized (loss) on available-for-sale securities (1,184) (3,560)
Retained earnings 280,721 225,216
---------- ----------
Total shareholder's equity 800,962 743,081
---------- ----------
Total liabilities and shareholder's equity $5,483,881 $5,290,218
========== ==========
</TABLE>
*Less than one thousand dollars
- -------------------------------------------------------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Unaudited; in thousands) 1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES $164,639 $148,536 $320,223 $290,652
-------- --------- -------- --------
EXPENSES
Sales, administrative and general 16,957 15,069 33,920 31,802
Interest 67,996 52,999 134,078 105,290
Depreciation -- operating leases 29,064 31,509 58,393 64,084
Other 7,625 9,185 12,687 18,869
-------- -------- -------- --------
Total expenses 121,642 108,762 239,078 220,045
-------- -------- -------- --------
Income before taxes on income 42,997 39,774 81,145 70,607
Taxes on income 13,434 12,839 25,640 22,633
-------- -------- -------- --------
NET INCOME $ 29,563 $ 26,935 $ 55,505 $ 47,974
======== ======== ======== ========
</TABLE>
- -------------------------------------------------------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(Unaudited; in thousands) 1995 1994
--------- ---------
<S> <C> <C>
Net cash flow from operating activities $ 142,001 $ 100,625
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Recovery of equipment costs and residual interests 362,856 315,387
Proceeds from sale of finance receivables -- 67,581
Cost of equipment acquired for lease (507,069) (367,422)
Notes receivable investments (104,876) (125,491)
Collections on notes receivable investments 84,375 67,930
Purchase of held-to-maturity securities (38,976) (33,267)
Maturity of held-to-maturity securities 13,158 7,591
Purchase of available-for-sale securities (64,503) (8,149)
Sale and maturity of available-for-sale securities 3,128 1,766
Purchase of other equity securities not subject to SFAS 115 (12,901) --
Increase in deferred initial direct costs (6,133) (4,304)
Other (1,179) (6,667)
--------- ---------
Net cash used in investing activities (272,120) (85,045)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 456,078 4,556
Long-term debt repaid (262,094) (150,588)
Net increase in short-term borrowings 31,016 138,231
Dividend to parent (100,000) --
--------- ---------
Net cash provided by/(used in) financing activities 125,000 (7,801)
--------- ---------
(Decrease)/increase in cash and equivalents (5,119) 7,779
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 16,226 6,708
--------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD $ 11,107 $ 14,487
========= =========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Interest paid $ 134,382 $ 110,907
Income taxes paid 268 278
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Accrued interest on bond accretion and notes receivable added
to principal $ 2,178 $ 426
Lease equipment transferred to inventory held for sale or lease 2,552 --
Fair market value adjustment on available-for-sale securities 3,898 1,870
</TABLE>
- -------------------------------------------------------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 for 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, 1994 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, 1994, 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,
1994. Certain amounts have been reclassified to conform to the 1995
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. IMPAIRMENT OF A LOAN
The Company adopted Statement 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", effective January 1, 1995. The effect on the Company's financial
statements was not material.
3. IMPAIRMENT OF LONG-LIVED ASSETS
The Accounting Standards Board issued Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of", which is effective for fiscal
years beginning after December 15, 1995. The Company will adopt the standard
January 1, 1996 and does not expect the impact on the financial statements to
be 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>
SIX MONTHS ENDED 1995 VS. 1994
JUNE 30, INCREASE/(DECREASE)
----------------------- -------------------
(In thousands) 1995 1994 AMOUNT %
---- ---- ------ -
<S> <C> <C> <C> <C>
Revenues $320,223 $290,652 $29,571 10%
------- ------- ------- ---
Expenses
Sales, admin. & general 33,920 31,802 2,118 7
Interest 134,078 105,290 28,788 27
Depreciation 58,393 64,084 (5,691) (9)
Other expenses 12,687 18,869 (6,182) (33)
-------- -------- ------- ---
Total expenses 239,078 220,045 19,033 9
------- ------- ------- ---
Operating Profit $ 81,145 $ 70,607 $10,538 15%
======= ======== ======= ===
</TABLE>
Revenues
Consolidated revenues increased $30 million or 10% during the first six
months of 1995 primarily reflecting an 11% increase in average earning assets.
The increased revenues also result from a $7 million increase in gain on asset
sales, primarily in the Business Equipment Finance and Corporate Finance
business units.
Expenses
Total expenses for the first six months of 1995 increased $19 million or
9%, and are discussed below.
Sales, administrative and general expenses increased $2 million or 7% in
the first six months of 1995. The increase is a result of a new advertising
campaign, higher expenses to support the growing portfolio of earning assets
and normal inflationary increases.
Interest expense increased $29 million or 27% for the six-month period,
reflecting an increase during the period in average borrowings from $3.53
billion in 1994 to $3.92 billion in 1995 as a result of increased earning
assets and the increase in leverage effected at the end of 1994. In addition,
there was an increase in borrowing rates, which averaged 6.8% in the first six
months of 1995 compared to 6.0% in the 1994 period.
7
<PAGE> 8
Depreciation expense on operating lease equipment decreased $6 million or
9% in the 1995 six-month period, although the average investment in the cost of
operating lease equipment increased 5% or $51 million during the period. The
reduction in depreciation expense is primarily a result of the increasingly
larger percentage of the operating lease portfolio invested in railcars, which
have longer useful lives and depreciate more slowly than other operating lease
equipment. In addition, the useful life of certain rail cars was extended at
the end of 1994, which reduced depreciation expense in the 1995 first six
months approximately $1 million.
Other expenses decreased $6 million or 33% in the 1995 first six months
due in part to a lower provision for losses (see Credit loss experience). In
addition, there was a decrease in operating lease expenses of approximately $3
million, primarily as a result of a decline in maintenance expenses incurred by
the Rail Services business unit. In the first half of 1994, special
maintenance costs were incurred for mandated inspections for 1,475 pressure
tank cars sold at the end of 1994.
Income before taxes on income
Based upon the discussion above, operating profit for the first six
months of 1995 improved $11 million or 15% compared with the first six months
of 1994 results.
Taxes on income
Income tax expense was 31.6% of income before taxes in the 1995 six-month
period compared with 32.1% in the same 1994 period. The decrease is primarily
a result of an increase in the percentage of income before taxes 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>
SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, DECEMBER 31,
--------------------- ----------------------
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Allowance for doubtful accounts (in millions)
Beginning balance $ 58 $ 55 $ 55
Provision 3 6 8
Charge-offs -- net (3) (2) (5)
------ ------ ------
Ending balance $ 58 $ 59 $ 58
====== ====== ======
Percent of earning assets 1.1% 1.3% 1.2%
Total balances of accounts receivable over
90 days past due at period end (in millions) $ 27 $ 41 $ 37
Percent of earning assets 0.5% 0.9% 0.7%
Total earning assets (in millions)
Investment in finance leases -- net $2,458 $2,286 $2,435
Investment in operating leases -- net 735 678 712
Investment in leveraged leases -- net 319 192 266
Notes receivable 836 762 825
Investment in securities 799 598 700
Inventory held for sale or lease 85 72 87
Investment in associated companies 18 18 18
------ ------ ------
Total $5,250 $4,606 $5,043
====== ====== ======
</TABLE>
During the first half of 1995, accounts receivable over 90 days past due
decreased $10 million, primarily as a result of the restructuring of a $16
million note, collateralized by an aircraft, which had been delinquent at
December 31, 1994. This decrease in accounts receivable over 90 days past due
was offset in part by a delinquent note in the amount of $11 million,
collateralized by an office building in Minnesota. Management is currently in
the process of attempting to restructure this note. Additions to the allowance
for doubtful accounts decreased $3 million when compared to the first six
months of 1994, primarily as a result of management's evaluation of the
adequacy of the loss reserve.
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>
JUNE 30, DECEMBER 31,
------------------- ------------
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Business Equipment Financing 25% 29% 27%
Transportation and Industrial Financing 25 25 25
Fleet Services 12 11 11
Municipal and Corporate Financing 19 17 18
Real Estate Financing 9 9 9
Rail Services 10 9 10
--- --- ---
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
August 2, 1995 By: /s/ Joseph J. Mahoney
- -------------------- ------------------------------------
Date Joseph J. Mahoney
Senior Vice President, Finance
August 2, 1995 By: /s/ Robert A. Keyes, Jr.
- -------------------- ------------------------------------
Date Robert A. Keyes, Jr.
Vice President, Corporate Controller
11
<PAGE> 12
EXHIBIT INDEX
Ex. 12 Computation of ratio of earnings to fixed charges.
Ex. 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
(Unaudited; in thousands) 1995 1994 1995 1994
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Earnings:
Income before taxes on income
per statement of income . . . . . . . . . . . . . . . . $ 42,997 $39,774 $ 81,145 $ 70,607
Add
Fixed charges . . . . . . . . . . . . . . . . . . . . . 68,705 53,686 135,499 106,790
Distributions and proceeds in excess of (less than)
net income of associated companies . . . . . . . . . 202 105 212 216
-------- ------- -------- --------
Income as adjusted . . . . . . . . . . . . . . . . . . . . $111,904 $93,565 $216,856 $177,613
======== ======= ======== ========
Fixed charges:
Interest on indebtedness including
amortization of debt issue costs and
discount or premium thereon . . . . . . . . . . . . . . $ 67,996 $52,999 $134,078 $105,290
Interest factor of annual rentals(1) . . . . . . . . . . . 709 687 1,421 1,500
-------- ------- -------- --------
Fixed charges . . . . . . . . . . . . . . . . . . . . . . . $ 68,705 $53,686 $135,499 $106,790
======== ======= ======== ========
Ratio of earnings to fixed charges . . . . . . . . . . . . 1.6 1.7 1.6 1.7
======== ======= ======== ========
</TABLE>
(1) The interest portion of annual rentals is estimated to be one-third of such
rentals.
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 11,107
<SECURITIES> 798,917
<RECEIVABLES> 4,363,027
<ALLOWANCES> 58,473
<INVENTORY> 85,453
<CURRENT-ASSETS> 0
<PP&E> 8,238
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,483,881
<CURRENT-LIABILITIES> 0
<BONDS> 4,041,146
<COMMON> 0
0
0
<OTHER-SE> 800,962
<TOTAL-LIABILITY-AND-EQUITY> 5,483,881
<SALES> 320,223
<TOTAL-REVENUES> 320,223
<CGS> 0
<TOTAL-COSTS> 67,659
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,421
<INTEREST-EXPENSE> 134,078
<INCOME-PRETAX> 81,145
<INCOME-TAX> 25,640
<INCOME-CONTINUING> 55,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,505
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
