PAGE 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 March 31, 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 May 12, 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.
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited consolidated financial statements of
Transamerica Finance Corporation and Subsidiaries, for the periods
ended March 31, 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 Registrant'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.
In the first quarter of 1994 Transamerica Finance Corporation and
Subsidiaries ("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 March 31, 1994. As of that date the unrealized
gain included in shareholder's equity as a result of adopting this new
accounting standard was $1,691,000.
On March 15, 1994, the Company acquired substantially all of 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 $1,065,000,000 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 $1,000,000,000, with further payments of
$14,265,000 to be made upon delivery of bills of sale and releases of
liens, and delivered $50,735,000 to escrow agents for the establishment
of a general escrow account ($40,400,000) and a repairs escrow account
($10,335,000).
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.
Tiphook, at the closing, entered into a non-compete agreement with
the Company prohibiting Tiphook and its affiliates from competing with
the Container Operations for a period of seven years. After the
closing, Tiphook is providing certain transitional services to the
Company pursuant to the terms of a transitional services agreement.
Tiphook has granted the Company an exclusive, perpetual license to the
name "Tiphook" in the business of leasing containers (on a worldwide
basis) and tank chassis (in the United States). The transaction was
accounted for as a purchase and the operations of the business included
in the consolidated statement of income from the date of acquisition.
Had the acquisition of the Container Operations been accomplished
as of January 1, 1993, revenues for the Company would have been approxi-
mately $400,000,000 for each of the three month periods ended March 31,
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 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.
****
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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.
<PAGE>
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TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except for share data)
March 31, December 31,
1994 1993
----------- -----------
ASSETS
Cash and cash equivalents $ 19,452 $ 29,321
Investments - available for sale 113,650 110,078
Finance receivables, net of unearned finance
charges and insurance premiums:
Consumer lending 3,627,044 3,650,523
Commercial lending 2,861,593 2,600,447
----------- -----------
Net finance receivables 6,488,637 6,250,970
Less allowance for losses 186,184 179,392
----------- -----------
6,302,453 6,071,578
Property and equipment - less accumulated
depreciation:
Land, buildings and equipment 44,216 43,784
Equipment held for lease 2,477,753 1,306,458
Investments in and advances to affiliates 304,723 371,012
Goodwill, less accumulated amortization 369,453 372,368
Assets held for sale 391,152 386,300
Less valuation allowance 157,852 159,532
----------- -----------
233,300 226,768
Other assets 581,178 500,003
----------- -----------
$10,446,178 $ 9,031,370
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Debt:
Unsubordinated $ 7,419,603 $ 6,335,378
Subordinated 696,125 696,125
----------- -----------
Total debt 8,115,728 7,031,503
Accounts payable and other liabilities 665,307 483,939
Income taxes payable 93,994 66,307
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 14,643 14,643
Additional paid-in capital 1,437,508 1,356,533
Retained earnings 127,885 87,105
Net unrealized gain from investments marked 1,691
to fair value
Foreign currency translation adjustments (10,578) (8,660)
----------- -----------
Total shareholder's equity 1,571,149 1,449,621
----------- -----------
$10,446,178 $ 9,031,370
=========== ===========
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TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(dollar amounts in thousands)
Three Months Ended March 31,
1994 1993
-------- --------
REVENUES
Finance charges $231,139 $230,867
Leasing revenues 113,621 89,676
Servicing fees 138 300
Income from affiliates 4,339 4,775
Other 10,740 13,729
-------- --------
Total revenues 359,977 339,347
-------- --------
EXPENSES
Interest and debt expense 101,926 106,760
Depreciation on equipment held for lease 32,617 23,454
Salaries and other operating expenses 133,161 121,191
Provision for losses on receivables 23,154 19,834
-------- --------
Total expenses 290,858 271,239
-------- --------
Income before income taxes 69,119 68,108
Income taxes 28,339 28,055
-------- --------
Net income $ 40,780 $ 40,053
======== ========
Ratio of earnings to fixed charges 1.65 1.61
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(in thousands)
Balance at beginning of year $87,105 $62,308
Net income 40,780 40,053
Cash dividends declared (22,000)
------- --------
Balance at end of period $127,885 $80,361
======== ========
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TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Three Months Ended March 31,
1994 1993
------------ ------------
OPERATING ACTIVITIES
Net income $ 40,780 $ 40,053
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of goodwill 38,474 29,130
Provision for losses on receivables 23,154 19,834
Amortization of discount on long-term debt 6,089 8,409
Change in accounts payable and other
liabilities 125,967 86,063
Change in income taxes payable 41,953 (21,327)
Other (50,587) 32,132
------------ ------------
Net cash provided by operating activities 225,830 194,294
------------ ------------
INVESTING ACTIVITIES
Finance receivables originated or purchased (3,692,318) (2,634,527)
Finance receivables collected or sold 3,418,378 2,425,927
Purchase of property and equipment (114,310) (75,097)
Sales of property and equipment 6,956 17,401
Purchase of investments (5,470) (8,021)
Sales or maturities of investments 3,589 6,911
Decrease in investments in and advances
to affiliates 66,289 10,212
Purchase of the container division assets
of Tiphook plc (1,065,000)
Other (12,923) (10,385)
------------ ------------
Net cash used by investing activities (1,394,809) (267,579)
------------ ------------
FINANCING ACTIVITIES
Proceeds from debt financing 2,831,591 1,544,714
Payments of debt (1,753,456) (1,388,036)
Capital contribution from parent company 80,975
Cash dividends paid (47,000)
------------ ------------
Net cash provided by financing activities 1,159,110 109,678
------------ ------------
Increase (decrease) in cash and cash
equivalents (9,869) 36,393
Cash and cash equivalents at beginning of
year 29,321 60,495
------------ ------------
Cash and cash equivalents at end of period $ 19,452 $ 96,888
============ ============
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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 thousands):
Three Months Ended March 31,
Revenues Net Income
------------------- ----------------
1994 1993 1994 1993
-------- -------- ------- -------
Consumer lending $162,630 $159,148 $21,222 $23,792
Commercial lending 80,538 85,236 9,303 5,837
Leasing 116,735 94,942 12,969 13,237
Unallocated items 74 21 201 101
Amortization of goodwill (2,915) (2,914)
--------- --------- --------- ---------
Total revenues and net
income $359,977 $339,347 $40,780 $40,053
========= ========= ========= =========
Consumer Lending
Consumer lending income, before the amortization of goodwill, for the
first quarter of 1994 decreased $2,570,000 (11%) from the first quarter
of 1993 due to increased operating expenses and an increased provision
for losses on receivables that more than offset higher revenues and
lower interest expense.
Revenues increased $3,482,000 (2%) in the first quarter of 1994
compared to 1993's first quarter mainly due to increased finance
charges resulting from slightly higher average finance receivables
outstanding.
Operating expenses for the first quarter of 1994 increased $5,937,000
(13%) over the first quarter of 1993 mainly due to an increase in the
number of branches, from 515 at March 31, 1993 to 570 at March 31,
1994, and new loan products, which are intended to stimulate future
growth. The provision for losses on receivables increased $5,111,000
(45%) due to increased credit losses. 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 1.89% for the first quarter of 1994 compared
to 1.23% for the first quarter of 1993. Credit losses increased mainly
due to continued sluggishness in the California economy and a continued
weak California real estate market. Interest expense declined
$3,091,000 (5%) due to a lower average interest rate.
Net consumer finance receivables at March 31, 1994 included
$3,001,300,000 of real estate secured loans, principally first and
second mortgages secured by residential properties, of which
approximately 48% 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 $84,729,000 (2.23% of
finance receivables outstanding) at March 31, 1994 compared to
$76,781,000 (2.00% of finance receivables outstanding) at December 3,1
1993 and $67,666,000 (1.79% of finance receivables outstanding) at
March 31,1993. Management has established an allowance for losses
equal to 2.83% of net consumer finance receivables outstanding at March
31, 1994, December 31, 1993 and March 31, 1993.
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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 $233,636,000
at March 31, 1994 compared to $214,665,000 at December 31, 1993 and
$200,068,000 at March 31, 1993. The increases primarily reflect higher
numbers of units in inventory in California due to its continuing weak
real estate market.
Commercial Lending
Commercial lending income, before the amortization of goodwill, for
the first quarter of 1994 increased $3,466,000 (59%) over the first
quarter of 1993. The increase was primarily due to stronger margins
brought about by the declining interest rate environment. The interest
rates at which the commercial lending operation borrows funds for its
businesses have moved more quickly than the rates at which it lends to
its customers. As a result, margins have been enhanced by the
declining interest rate environment. Lower operating expenses and a
lower provision for losses also contributed to the increase.
Revenues in the first quarter of 1994 decreased $4,698,000 (6%) from
the first quarter of 1993 mainly as a result of lower finance charges
in the liquidating portfolio and slightly reduced yields attributable
to the current low interest rate environment.
Expenses decreased in the first quarter of 1994 by $10,113,000 (13%)
from the first quarter of 1993. Interest expense declined $5,287,000
(18%) due to a lower average interest rate. Operating expenses
declined $3,035,000 (8%) mainly as a result of reduced expenses
incurred relating to the management of the liquidating portfolio and
restructuring of the commercial lending unit's infrastructure. The
provision for losses on receivables declined $1,791,000 (21%)
principally due to lower credit losses. Credit losses, on an
annualized basis as a percentage of average commercial finance
receivables outstanding, net of unearned finance charges, were a
negative 0.13% as recoveries on previously recorded losses exceeded
credit losses for the first quarter of 1994 compared to 1.73% in 1993's
first quarter.
Net commercial finance receivables outstanding increased $261,146,000
(10%) from December 31, 1993 to March 31, 1994 due to growth in the
inventory finance and business credit portfolios. Management has
established an allowance for losses equal to 2.92% of net commercial
finance receivables outstanding as of March 31, 1994 compared to 2.93%
at December 31, 1993 and 3.04% at March 31, 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 $23,874,000 (0.82% of receivables outstanding) at March 31, 1994
compared to $26,940,000 (1.02% of receivables outstanding) at December
31, 1993 and $55,394,000 (1.96% of receivables outstanding) at March
31, 1993.
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 $32,780,000 (1.13% of receivables
outstanding) at March 31, 1994 compared to $31,763,000 (1.20% of
receivables outstanding) at December 31, 1993 and $72,432,000 (2.57% of
receivables outstanding) at March 31, 1993.
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Assets held for sale as of March 31, 1994 totaled $79,805,000, net of
a $155,305,000 valuation allowance, and consisted of rent-to-own
finance receivables of $111,320,000, repossessed rent-to-own stores of
$104,900,000 and other repossessed assets of $18,890,000. Assets held
for sale at December 31, 1993 totaled $90,114,000, net of a
$156,985,000 valuation allowance, and comprised rent-to-own finance
receivables of $120,469,000, repossessed rent-to-own stores of
$107,227,000 and other repossessed assets of $19,403,000. Assets
held for sale at March 31, 1993 totaled $175,435,000, net of a
$119,877,000 valuation allowance, and comprised rent-to-own finance
receivables of $161,452,000, repossessed rent-to-own stores of
$103,613,000 and other repossessed assets of $30,247,000. Of the rent-
to-own finance receivables, $26,842,000 were classified as both
delinquent and nonearning at March 31, 1994 compared to $27,489,000 at
December 31, 1993 and $35,607,000 at March 31, 1993.
Leasing
As previously discussed on Page 2, on March 15, 1994, the leasing
operation purchased substantially all of the assets of the container
rental businesses of Tiphook plc for $1,065,000 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. Results for the first
quarter include the sixteen days of operations subsequent to the
acquisition and reduced net income for the quarter by $327,000.
Leasing income, excluding the effect of Tiphook discussed above and
before the amortization of goodwill, for the first quarter of 1994
increased $59,000 (-%) from the first quarter of 1993 mainly as a result
of higher utilization in the rail trailer business.
Revenues, including $8,763,000 from the Tiphook operation, for the
first quarter of 1994 increased $21,793,000 (23%) over the first
quarter of 1993. The increase was mainly due to a larger standard and
refrigerated container fleet, higher utilization in the rail trailer
and European trailer product lines and a larger finance lease
portfolio.
Expenses, including $9,280,000 from the Tiphook operation, for the
first quarter of 1994 increased $21,874,000 (30%) over the first
quarter of 1993 mainly due to higher ownership and operating costs due
to a larger fleet.
The combined utilization (including Tiphook) of standard containers,
refrigerated containers, domestic containers, tank containers and
chassis averaged 82% for the first quarter of 1994 compared to 81%
during the first quarter of 1993. Rail trailer utilization was 90% for
the first quarter of 1994 compared to 86% in the first quarter of 1993.
European over-the-road trailer utilization was 96% during the 1994
first quarter compared to 86% during the comparable 1993 period.
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).
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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.
The Registrant filed on March 24, 1994 a report on Form 8-K
dated March 15, 1994 relating to the purchase on March 15, 1994
of substantially all of the assets of the container rental
division of Tiphook plc for $1,065,000 in cash. The report
included the following financial statements:
1. Financial statements of Tiphook Container Rental Company
Limited and Tiphook Rentals Limited
a) The following audited combined financial statements of
Tiphook Container Rental Company Limited and Tiphook Rentals
Limited:
Independent Auditors' Report - April 30, 1993
Combined Profit and Loss Statement - Year ended
April 30, 1993
Combined Statement of Total Recognised Gains and Losses -
Year ended April 30, 1993
Combined Balance Sheet - April 30, 1993
Combined Cash Flow Statement - Year ended April 30, 1993
Notes to the Combined Financial Statements - Year ended
April 30, 1993
b) The following unaudited interim financial statements of
the Container Rental Businesses:
Combined Profit and Loss Statement - Six months ended
October 31, 1993 and 1992
Combined Statement of Total Recognised Gains and Losses
- Six months ended October 31, 1993 and 1992
Combined Balance Sheet - October 31, 1993
Combined Cash Flow Statement - Six months ended October 31,
1993 and 1992
Notes to the Unaudited Combined Interim Financial
Information - Six months ended October 31, 1993
2. Pro forma Financial Information of Transamerica Finance
Corporation and Subsidiaries
Pro forma Condensed Consolidated Balance Sheet -
December 31, 1993
Pro forma Condensed Consolidated Income Statement - Year
ended December 31, 1993
Notes to Pro forma Financial Information - December 31, 1993
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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)
By RAYMOND A. GOLAN
Date: May 13, 1994 (Raymond A. Golan, Vice President,
Controller and Chief Accounting Officer)
<PAGE>
EXHIBIT 12
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended March 31,
1994 1993
(dollar amounts in thousands)
Fixed charges:
Interest and debt expense $101,926 $106,760
One-third of rent expense 4,747 4,820
-------- --------
Total $106,673 $111,580
======== ========
Earnings:
Income before income taxes $69,119 $68,108
Fixed charges 106,673 111,580
-------- --------
Total $175,792 $179,688
======== ========
Ratio of earnings to fixed charges 1.65 1.61
======== ========
