<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 1994
Commission File Number 1-6798
_____________________________________
TRANSAMERICA FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-1077235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1150 South Olive Street
Los Angeles, California 90015
(Address of principal executive offices)
(Zip Code)
(213) 742-4321
(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
______ ______
Number of shares of common stock, $10 par value, outstanding as of close of
business on August 11, 1994: 1,464,285 shares.
The registrant meets the conditions set forth in General Instructions H(1)(
a) and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited consolidated financial statements of Transamerica
Finance Corporation and Subsidiaries (the "Company"), for the periods ended
June 30, 1994 and 1993, do not include complete financial information and
should be read in conjunction with the Consolidated Financial Statements
filed with the Commission in the Company's Annual Report on Form 10-K for the
year ended December 31, 1993. The financial information presented in the
financial statements included in this report reflects all adjustments,
consisting only of normal recurring accruals, which are, in the opinion of
management, necessary for a fair statement of results for the interim periods
presented.
The operations of the Company are subject to risk of interest rate
fluctuations to the extent that there is a difference between the cash flows
from the Company's interest-earning assets and the cash flows related to its
liabilities that mature or are repriced in specified periods. In the normal
course of its operations, the Company hedges some of this interest rate
risk with financial instrument derivatives. Such derivatives comprise
primarily interest rate swap agreements. Interest rate swap agreements are
intended to help the Company match more closely the cash flow received from
its assets to the payments on its liabilities. These agreements generally
provide that one party pays interest at a floating rate and the other party
pays interest at a fixed rate. While the Company is exposed to credit risk
in the event of nonperformance by the other party, nonperformance is not
anticipated due to the credit rating of the counterparties. At June 30,
1994, the interest rate swap agreeements are with banks rated A or better
by one or more of the major credit rating agencies.
The interest rate swap contracts are designated and accounted for as hedges
of a portion of the Company's outstanding indebtedness, and their cost is
amortized over the shorter of the lives of the contracts or the lives of the
related liabilities. At June 30, 1994, such contracts comprise agreements in
which the Company pays floating rate interest and receives fixed rate
payments, at a weighted average rate of 6.98%, on the notional amount of $216
million; agreements whereby it makes fixed rate payments, at a weighted
average interest rate of 6.23%, and receives flowting rate interest on the
notional amount of $579.6 million; and agreements whereby it makes floating
rate payments referenced to one index and receives floating rate interest
referenced to another index on the notional amount of $101 million. The net
present value of these interest rate swap agreements, which offset changes in
the fair value of the hedged indebtedness, which in accordance with generally
accepted accounting principles are also carried at amortized cost, resulted in
a net obligation to counterparties of $200,000, comprising a gross obligation
of $5.1 million and a gross benefit of $4.9 million.
In the first quarter of 1994 the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. This new standard requires the Company to report at fair
value those investments which it does not have the positive intent and ability
to hold to maturity. There is no effect on the income statement. The effect
of this adjustment, net of federal income taxes, is recorded in a separate
component of shareholder's equity. All of the Company's investments in debt
securities have been classified as available for sale at June 30, 1994. As of
that date the unrealized loss included in shareholder's equity as a result of
adopting this new accounting standard was $1 million.
On March 15, 1994, the Company acquired substantially all the operating
assets of the Container Operations of Tiphook plc ("Tiphook"), a London-based
transportation equipment rental company, including certain dry cargo
containers, tank containers, tank chassis, operating leases and other assets
of Tiphook (collectively the "Container Operations") for $1,065 million in
cash. The Company assumed certain specified liabilities of the Container
Operations including trade accounts payable. The Company did not assume any
borrowings, tax liabilities or contingent liabilities of Tiphook. The Company
paid to Tiphook $1 billion, with further payments of $14.3 million to be made
upon delivery of bills of sale and releases of liens, and delivered $50.7
million to escrow agents for the establishment of a general escrow account
($40.4 million) and a repairs escrow account ($10.3 million).
Adjustments to the purchase price, if any, will be determined on completion
of examination of the closing balance sheet of the Container Operations as of
March 15, 1994 by the Company's auditors and Tiphook's auditors. Unresolved
disputes, if any, will be referred to a third independent auditor.
Had the acquisition of the Container Operations been accomplished as of
January 1, 1993, revenues for the Company would have been approximately $830
million and $800 million for the six month periods ended June 30, 1994 and
1993. The pro forma effect on net income would have been immaterial. This
information is for illustrative purposes only and is not necessarily indicative
of the future results of the operations of the combined company, or of the
results of the operations of the combined company that would have actually
occurred had the transaction been in effect for the periods presented. In
addition, it should be noted that Transamerica Finance Corporation's financial
statements reflect the acquisition from March 15, 1994, the closing date of the
transaction.
****
The consolidated ratios of earnings to fixed charges were computed by
dividing earnings before fixed charges and income taxes by the fixed
charges. Fixed charges consist of interest and debt expense, and one-third
of rent expense, which approximates the interest factor.
Certain amounts for 1993 have been reclassified to conform with the 1994
presentation.
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<CAPTION>
<PAGE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions, except for share data)
June 30, December 31,
1994 1993
________ ________
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . $ 28.2 $ 29.3
Investments - available for sale. . . . . . . . . . . 111.7 110.1
Finance receivables, net of unearned finance charges
and insurance premiums:
Consumer lending . . . . . . . . . . . . . . . . 3,783.7 3,650.5
Commercial lending . . . . . . . . . . . . . . . 2,621.6 2,600.5
________ ________
Net finance receivables. . . . . . . . . . . . 6,405.3 6,251.0
Less allowance for losses. . . . . . . . . . . . 188.9 179.4
________ ________
6,216.4 6,071.6
Property and equipment - less accumulated depreciation:
Land, buildings and equipment . . . . . . . . . . . 45.5 43.7
Equipment held for lease. . . . . . . . . . . . . . 2,529.9 1,306.5
Investments in and advances to affiliates . . . . . . 300.4 371.0
Goodwill, less accumulated amortization . . . . . . . 366.5 372.4
Assets held for sale. . . . . . . . . . . . . . . . . 369.4 386.3
Less valuation allowance. . . . . . . . . . . . . . . 155.6 159.5
________ _________
213.8 226.8
Other assets. . . . . . . . . . . . . . . . . . . . . 611.2 500.0
________ _________
$ 10,423.6 $ 9,031.4
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Debt:
Unsubordinated. . . . . . . . . . . . . . . . . . . $ 7,219.1 $ 6,335.4
Subordinated. . . . . . . . . . . . . . . . . . . . 891.8 696.1
________ _________
Total debt . . . . . . . . . . . . . . . . . . . 8,110.9 7,031.5
Accounts payable and other liabilities. . . . . . . . 686.3 484.0
Income taxes payable. . . . . . . . . . . . . . . . . 79.9 66.3
Shareholder's equity:
Preferred stock - authorized, 250,000 shares without
par value; none issued
Common stock - authorized, 2,500,000 shares of $10
par value; issued and outstanding,
1,464,285 shares . . . . . . . . . . . . . . . . 14.6 14.6
Additional paid-in capital. . . . . . . . . . . . . 1,438.7 1,356.5
Retained earnings . . . . . . . . . . . . . . . . . 101.8 87.1
Net unrealized loss from investments marked to fair
value. . . . . . . . . . . . . . . . . . . . . . (1.0)
Foreign currency translation adjustments. . . . . . (7.6) (8.6)
________ _________
Total shareholder's equity . . . . . . . . . . . 1,546.5 1,449.6
________ _________
$ 10,423.6 $ 9,031.4
=========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(dollar amounts in millions)
Six Months Ended June 30, Three Months Ended June 30,
1994 1993 1994 1993
_______ ________ _______ ________
<S> <C> <C> <C> <C>
REVENUES
Finance charges . . . . . . . . . . $ 478.7 $ 463.4 $ 247.5 $ 232.6
Leasing revenues. . . . . . . . . . 278.2 183.7 164.6 94.0
Servicing fees. . . . . . . . . . . 0.2 0.6 0.1 0.3
Income from affiliates. . . . . . . 8.6 8.9 4.3 4.1
Other . . . . . . . . . . . . . . . 23.9 27.0 13.1 13.3
_______ ________ _______ ________
Total revenues. . . . . . . . . . 789.6 683.6 429.6 344.3
_______ ________ _______ ________
EXPENSES
Interest and debt expense . . . . . 220.8 212.0 118.9 105.2
Depreciation on equipment held for
lease. . . . . . . . . . . . . . . 85.4 48.1 52.8 24.7
Salaries and other operating expenses 284.9 238.3 151.7 117.1
Provision for losses on receivables 46.7 47.4 23.5 27.6
_______ ________ _______ ________
Total expenses. . . . . . . . . . 637.8 545.8 346.9 274.6
_______ ________ _______ ________
Income before income taxes. . . . . 151.8 137.8 82.7 69.7
Income taxes. . . . . . . . . . . . 62.1 56.5 33.8 28.5
_______ ________ _______ ________
Net income. . . . . . . . . . . . . $ 89.7 $ 81.3 $ 48.9 $ 41.2
======= ======== ======= ========
Ratio of earnings to fixed charges. 1.66 1.62
<CAPTION>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(in millions)
Six Months Ended June 30,
1994 1993
________ ________
<S> <C> <C>
Balance at beginning of year. . . . $ 87.1 $ 62.3
Net income. . . . . . . . . . . . . 89.7 81.3
Cash dividends declared . . . . . . (75.0) (44.0)
_______ ________
Balance at end of period. . . . . . $ 101.8 $ 99.6
======= =========
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Six Months Ended June 30,
1994 1993
________ ________
<S> <C> <C>
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . $ 89.7 $ 81.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of goodwill . . . . 97.3 59.5
Provision for losses on receivables . . . . . . . 46.7 47.4
Amortization of discount on long-term debt. . . . 12.4 17.1
Change in accounts payable and other liabilities. 164.3 75.2
Change in income taxes payable. . . . . . . . . . 27.9 (23.7)
Other . . . . . . . . . . . . . . . . . . . . . . (51.7) 62.7
________ ________
Net cash provided by operating activities. . . 386.6 319.5
________ ________
INVESTING ACTIVITIES
Finance receivables originated or purchased . . . . (7,580.9) (5,414.5)
Finance receivables collected or sold . . . . . . . 7,362.9 5,318.7
Purchase of property and equipment. . . . . . . . . (242.2) (189.1)
Sales of property and equipment . . . . . . . . . . 13.6 31.4
Purchase of investments . . . . . . . . . . . . . . (5.5) (18.5)
Sales or maturities of investments. . . . . . . . . 2.8 14.6
Decrease (increase) in investments in and advances
to affiliates. . . . . . . . . . . . . . . 70.7 (10.3)
Purchase of the container division assets of
Tiphook plc . . . . . . . . . . . . . . . . . . . (1,065.0)
Other . . . . . . . . . . . . . . . . . . . . . . . (18.2) (60.9)
________ ________
Net cash used by investing activities. . . . . (1,461.8) (328.6)
________ ________
FINANCING ACTIVITIES
Proceeds from debt financing. . . . . . . . . . . . 4,829.2 2,599.8
Payments of debt. . . . . . . . . . . . . . . . . . (3,762.2) (2,476.4)
Capital contribution from parent company. . . . . . 82.1
Cash dividends paid . . . . . . . . . . . . . . . . (75.0) (69.0)
________ ________
Net cash provided by financing activities. . . 1,074.1 54.4
________ ________
Increase (decrease) in cash and cash equivalents. . (1.1) 45.3
Cash and cash equivalents at beginning of year. . . 29.3 60.5
________ ________
Cash and cash equivalents at end of period. . . . . $ 28.2 $ 105.8
======== =========
</TABLE>
<PAGE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS
OF OPERATIONS
The following table sets forth revenues and net income by line of business for
the periods indicated (in millions):
<TABLE>
Six Months Ended June 30,
_________________________________
Revenues Net Income
_________________ ______________
1994 1993 1994 1993
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Consumer lending. . . . . . . . . . $ 337.1 $ 320.9 $ 45.2 $ 47.0
Commercial lending. . . . . . . . . 167.2 169.4 21.1 13.0
Leasing . . . . . . . . . . . . . . 285.2 193.3 28.7 26.9
Unallocated items . . . . . . . . . 0.1 0.5 0.2
Amortization of goodwill. . . . . . (5.8) (5.8)
_______ _______ _______ _______
Total revenues and net income . . $ 789.6 $ 683.6 $ 89.7 $ 81.3
======= ======= ======= =======
</TABLE>
Consumer Lending
Consumer lending income, before the amortization of goodwill, for the first
half of 1994 decreased $1.8 million (4%) from the first half of 1993.
Excluding a $5.3 million benefit ($3.1 million after tax) recorded in the
second quarter of 1993 from the reversal of reserves related to a 1990 sale of
receivables to Transamerica Financial Services Finance Co. which subsequently
were securitized, results for the first half of 1994 increased $1.3 million
(3%) over the first half of 1993 due to higher revenues and lower interest
expense that more than offset increased operating expenses and an increased
provision for losses on receivables.
Revenues increased $16.2 million (5%) in the first half of 1994 over the
corresponding period of 1993 mainly due to increased finance charges resulting
from higher average finance receivables outstanding and higher fees due to an
increased volume of real estate secured loans.
Interest expense for the first half of 1994 declined $4.5 million (4%) from
the first half of 1993 due to a lower average interest rate. Operating
expenses for the first half of 1994 increased $17.6 million (20%) over the
corresponding period of 1993. Excluding the $5.3 million reserve reversal
recorded in the second quarter of 1993, operating expenses in the first half
of 1994 increased $12.3 million (13%) mainly due to an increase in the number
of branches, from 534 at June 30, 1993 to 582 at June 30, 1994, and costs of
developing new loan products. The provision for losses on receivables for the
first half of 1994 increased due to increased credit losses and increased
growth in net finance receivables over the first half of 1993. The provision
for the first half of 1994 increased $6.9 million (24%). Credit losses, net
of recoveries, on an annualized basis as a percentage of average consumer
finance receivables outstanding, net of unearned finance charges and insurance
premiums, were 1.81% for the first half of 1994 compared to 1.54% for the
first half of 1993. Credit losses increased mainly due to continued
sluggishness in the California economy and a continued weak California real
estate market.
Net consumer finance receivables at June 30, 1994 included $3.1 billion of
real estate secured loans, principally first and second mortgages secured by
residential properties, of which approximately 47% are located in California.
Company policy generally limits the amount of cash advanced on any one loan,
plus any existing mortgage, to between 70% and 80% (depending on location) of
the appraised value of the mortgaged property, as determined by qualified
independent appraisers at the time of loan origination.
Delinquent finance receivables, which are defined as receivables
contractually past due 60 days or more, were $81.3 million (2.05% of finance
receivables outstanding) at June 30, 1994 compared to $76.8 million (2.00% of
finance receivables outstanding) at December 31, 1993 and $73 million (1.92%
of finance receivables outstanding) at June 30, 1993. Management has
established an allowance for losses equal to 2.83% of net consumer finance
receivables outstanding at June 30, 1994, December 31, 1993 and June 30, 1993.
Generally, by the time an account secured by residential real estate becomes
past due 90 days, foreclosure proceedings have begun, at which time the
account is moved from finance receivables to other assets and is written down
to the estimated realizable value of the collateral if less than the account
balance. After foreclosure, repossessed assets are carried at the lower of
cost or fair value less estimated selling costs, and are reclassified to
assets held for sale. Accounts in foreclosure and repossessed assets held for
sale totaled $236.1 million at June 30, 1994 compared to $214.7 million at
December 31, 1993 and $190.3 million at June 30, 1993. The increases
primarily reflect higher inventory in California due to its continuing weak
real estate market.
Commercial Lending
Commercial lending income, before the amortization of goodwill, for the
first half of 1994 increased $8.1 million (62%) over the first half of 1993.
The increase was primarily due to a lower provision for losses on receivables
and stronger margins. Stronger margins were a result of the higher spread
between the indices at which the commercial lending operation lends to
customers and the indices at which funds are borrowed.
Revenues in the first half of 1994 decreased $2.2 million (1%) from the
corresponding period of 1993. This was primarily a result of reduced yields
attributable to the low interest rate environment during the first quarter of
1994, which was partially offset by increased yields during the second
quarter of 1994 as a result of rising interest rates.
Interest expense declined $4.9 million (8%) compared to the first half of
1993 primarily as a result of a lower average interest rate. Operating
expenses declined $3.2 million (4%) during the first half of 1994 from the
same period in 1993 primarily due to reduced expenses incurred relating to
the management of the liquidating portfolio. The provision for losses on
receivables in the first half of 1994 was $7.7 million (42%) less than in the
first half of 1993 principally due to lower credit losses and lower
nonearning and delinquent receivables. Credit losses, net of recoveries, on
an annualized basis as a percentage of average commercial finance receivables
outstanding, net of unearned finance charges, were 0.31% for the first half
of 1994 compared to 1.08% in the first half of 1993.
Net commercial finance receivables outstanding increased $21.2 million (1%)
from December 31, 1993 due to growth in the business credit portfolio. The
allowance for losses was 3.12% of net commercial finance receivables
outstanding as of June 30, 1994 compared to 2.93% at December 31, 1993 and
3.53% at June 30, 1993.
Delinquent receivables, which are defined as the instalment balance for
inventory finance and business credit receivables and the receivable balance
for all other receivables over 60 days past due, were $19.6 million (0.74% of
receivables outstanding) at June 30, 1994 compared to $26.9 million (1.02% of
receivables outstanding) at December 31, 1993 and $48.1 million (1.83% of
receivables outstanding) at June 30, 1993.
<PAGE>
Nonearning receivables, which are defined as balances from borrowers that
are over 90 days delinquent or at such earlier time as full collectibility
becomes doubtful, were $26.4 million (0.99% of receivables outstanding) at
June 30, 1994 compared to $31.8 million (1.20% of receivables outstanding) at
December 31, 1993 and $67.4 million (2.56% of receivables outstanding) at
June 30, 1993.
Assets held for sale as of June 30, 1994 totaled $55.7 million, net of a
$153.1 million valuation allowance, and consisted of rent-to-own finance
receivables of $91 million, repossessed rent-to-own stores of $106.6 million
and other repossessed assets of $11.2 million. Assets held for sale at
December 31, 1993 totaled $90.1 million, net of a $157 million valuation
allowance, and comprised rent-to-own finance receivables of $120.5 million,
repossessed rent-to-own stores of $107.2 million and other repossessed assets
of $19.4 million. Assets held for sale at June 30, 1993 totaled $152.2
million, net of a $108.5 million valuation allowance, and comprised rent-to-
own finance receivables of $136.9 million, repossessed rent-to-own stores of
$103.3 million and other repossessed assets of $20.5 million. Of the rent-to-
own finance receivables, $26.1 million were classified as both delinquent and
nonearning at June 30, 1994 compared to $27.5 million at December 31, 1993
and $27.4 million at June 30, 1993.
Leasing
As previously discussed above, Part 1., Item 1., on March 15, 1994, the
leasing operation purchased substantially all of the assets of the container
rental businesses of Tiphook plc for $1,065 million in cash. The acquired
fleet of standard containers and tank containers totaled 363,000 units. The
transaction has been accounted for as a purchase and the operations of the
business acquired have been included in the results of the leasing operation
from the date of acquisition.
Leasing income, before the amortization of goodwill, for the first half of
1994 increased $1.8 million (7%) over the first half of 1993 principally due
to a larger fleet size, higher fleet utilization in the rail trailer, chassis
and European trailer lines and an increased finance lease portfolio, partially
offset by a lower gain on disposal of units and lower utilization and rates in
the standard container line.
Revenues for the first half of 1994 increased $91.9 million (48%) over the
first half of 1993. The increase was mainly due to the Tiphook acquisition of
standard and tank containers, a larger fleet of new standard and refrigerated
containers, higher utilization in the rail trailer, chassis and European
trailer product lines and a larger finance lease portfolio.
Expenses for the first half of 1994 increased $88 million (58%) over the
first half of 1993 mainly due to higher ownership and operating costs of a
larger fleet.
The combined utilization of standard containers, refrigerated containers,
domestic containers, tank containers and chassis averaged 81% for the first
half of 1994 compared to 82% for the first half of 1993. Rail trailer
utilization was 92% for the first half of 1994 compared to 88% for the first
half of 1993. European trailer utilization was 96% for the first half of 1994
compared to 87% for the first half of 1993.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Omitted in accordance with General Instructions H. See "Management's
Discussion and Analysis of the Results of Operations" following the financial
statements of the Registrant (Item I).
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a)Exhibits.
EX-12 Computation of Ratio of Earnings to Fixed Charges.
b) Reports on Form 8-K.
None.
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.
TRANSAMERICA FINANCE CORPORATION
(Registrant)
Dated: August 12, 1994 By RAYMOND A. GOLAN
(Raymond A. Golan, Vice President, Controller
and Chief Accounting Officer)
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EXHIBIT 12
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Six Months Ended June 30,
1994 1993
________ _________
(dollar amounts in millions)
<S> <C> <C>
Fixed charges:
Interest and debt expense . . . . . . . . . . . . $ 220.8 $ 212.0
One-third of rent expense . . . . . . . . . . . . 10.0 9.6
________ _________
Total. . . . . . . . . . . . . . . . . . . . . $ 230.8 $ 221.6
======== ========
Earnings:
Income before income taxes. . . . . . . . . . . . $ 151.8 $ 137.8
Fixed charges . . . . . . . . . . . . . . . . . . 230.8 221.6
________ _________
Total. . . . . . . . . . . . . . . . . . . . . $ 382.6 $ 359.4
======== ========
Ratio of earnings to fixed charges. . . . . . . . . 1.66 1.62
======== ========
</TABLE>
