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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, 1996
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.)
600 Montgomery Street
San Francisco, California 94111
(Address of principal executive offices)
(Zip Code)
(4l5) 983-4000
(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 April 30, 1996: 1,464,285.
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TRANSAMERICA FINANCE CORPORATION
FORM 10-Q
Part I. Financial Information
Item 1. Financial Statements.
The following unaudited consolidated financial statements of
Transamerica Finance Corporation and Subsidiaries (the "Company") for the
periods ended March 31, 1996 and 1995, do not include complete financial
information and should be read in conjunction with the Consolidated Financial
Statements filed with the Commission on Form 10-K for the year ended
December 31, 1995. 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.
Results for the nine months are not necessarily indicative of the results for
the entire year for most of the Company's businesses.
* * * * *
The consolidated ratios of earnings to fixed charges were computed by
dividing income from continuing operations 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.
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TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
_____________
CONSOLIDATED BALANCE SHEET
(Amounts in millions except for share data)
March 31, December 31,
1996 1995
Assets:
Cash and cash equivalents .................... $ 57.7 $ 2.7
Investments .................................. 135.9 139.0
Finance receivables, net of unearned finance
charges and insurance premiums:
Consumer lending ........................... 4,828.8 4,936.3
Commercial lending ......................... 3,169.8 2,871.5
_________ _________
Net finance receivables .................. 7,998.6 7,807.8
Less allowance for losses .................. 224.0 237.1
_________ _________
7,774.6 7,570.7
Property and equipment net of accumulated
depreciation:
Land, buildings and equipment ................ 46.4 46.1
Equipment held for lease ..................... 2,858.9 2,862.0
Advances to Transamerica affiliates ............ 215.1 187.9
Goodwill ....................................... 337.0 339.9
Assets held for sale ........................... 79.2 105.1
Less valuation allowance ....................... 6.1 6.0
_________ _________
73.1 99.1
Other assets ................................... 898.9 858.8
_________ _________
$12,397.6 $12,106.2
========= =========
Liabilities and Stockholder's Equity:
Debt:
Unsubordinated ............................. $ 8,967.0 $ 8,747.7
Subordinated ............................... 933.2 942.2
_________ _________
Total debt ............................... 9,900.2 9,689.9
Accounts payable and other liabilities ....... 556.0 511.9
Income taxes payable ......................... 208.6 189.9
Stockholder's equity:
Preferred stock --authorized, 250,000
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 ................. 1,594.6 1,594.6
Retained earnings .......................... 127.7 103.5
Net unrealized gain from
investments marked to fair value ......... 2.7 6.6
Foreign currency translation adjustments ... (6.8) (4.8)
_________ _________
Total stockholder's equity ............... 1,732.8 1,714.5
_________ _________
$12,397.6 $12,106.2
========= =========
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TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
_______________
CONSOLIDATED STATEMENT OF INCOME
(Amounts in millions)
Three months ended
March 31,
1996 1995
REVENUES
Finance charges ................................ $ 283.2 $ 259.8
Leasing revenues ............................... 173.8 169.0
Income from affiliates ......................... 3.0 2.6
Other .......................................... 17.6 21.1
Total revenues ............................... ________ ________
477.6 452.5
EXPENSES
Interest and debt expense ...................... 153.7 146.7
Depreciation on equipment held for lease ....... 60.4 56.9
Salaries and other operating expenses .......... 158.9 144.3
Provision for losses on receivables ............ 30.0 25.5
________ ________
Total expenses ............................... 403.0 373.4
________ ________
Income before income taxes ....................... 74.6 79.1
Income taxes ..................................... 26.8 32.2
________ ________
Net income $ 47.8 $ 46.9
======== ========
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TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in millions)
Three months ended
March 31,
1996 1995
OPERATING ACTIVITIES
Net income ................................... $ 47.8 $ 46.9
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization ............ 66.7 63.0
Provision for losses on receivables ...... 30.1 25.5
Amortization of discount on long-term
debt .................................. 2.3 2.0
Change in accounts payable and other
liabilities ........................... 38.6 50.9
Change in income taxes payable 20.7 18.3
Other .................................... 21.6 17.6
_________ _________
Net cash provided by operating
activities .......................... 227.8 224.2
INVESTING ACTIVITIES
Finance receivables originated ............... (3,680.0) (4,401.8)
Finance receivables collected ................ 3,407.4 4,166.2
Purchase of property and equipment ........... (83.7) (154.4)
Sales of property and equipment .............. 24.6 13.7
Purchase of investments ...................... (2.9) (10.3)
Sales or maturities of investments ........... 0.1 2.8
Decrease (increase) in investments in and
advances to affiliates ................... (27.3) 121.6
Purchase of finance receivables and
other assets from ITT Consumer
Financial Corporation .................. (1,027.3)
Other 12.2 (11.1)
_________ _________
Net cash used by investing activities..... (349.6) (1,300.6)
FINANCING ACTIVITIES
Proceeds from debt financing ................... 955.0 2,691.9
Payments of debt ............................... (754.6) (1,753.3)
Capital contributions from parent company ...... 131.0
Dividends ...................................... (23.6)
_________ _________
Net cash provided by financing activities 176.8 1,069.6
Increase (decrease) in cash and cash
equivalents .................................. 55.0 (6.8)
Cash and cash equivalents at beginning
of year ...................................... 2.7 7.7
_________ _________
Cash and cash equivalents at end of period ..... $ 57.7 $ 0.9
========= =========
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TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(Amounts in millions)
Three months ended
March 31,
1996 1995
Balance at beginning of year .......... $ 103.5 $ 124.3
Net income ............................ 47.8 46.9
Dividends declared .................... (23.6) (38.5)
________ ________
Balance at end of period .............. $ 127.7 $ 132.7
======== ========
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
REVENUES AND INCOME BY LINE OF BUSINESS
Three months ended March 31,
Revenues Income
1996 1995 1996 1995
(Amounts in millions)
Consumer lending ............. $ 198.1 $ 171.8 $ 17.8 $17.7
Commercial lending ........... 96.6 103.4 14.7 16.7
Leasing ...................... 181.9 175.7 18.8 16.3
Unallocated items ............ 1.0 1.6 (0.6) (0.9)
Amortization of goodwill ..... (2.9) (2.9)
________ ________ ______ _____
Finance $ 477.6 $ 452.5 $ 47.8 46.9
======== ======== ====== =====
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Consumer Lending
Consumer lending net income for the first quarter of 1996 was $17.8
million compared to $17.6 million for the first quarter of 1995. Consumer
lending income before the amortization of goodwill for the first quarter of
1996 was $17.8 million compared to $17.7 million for the first quarter of
1995.
Consumer lending income before the amortization of goodwill for the first
quarter of 1996 rose $100,000 (1%) from the first quarter of 1995. The rise
was due to increased revenues on higher average receivables outstanding that
offset higher interest and other operating expenses and a larger provision for
loan losses.
Revenues increased $26.3 million (15%) in the first quarter of 1996 over
the comparable year ago period due to the effects of a $554.5 million (13%)
increase in average net receivables outstanding, which resulted primarily from
the March 31, 1995 acquisition of approximately $1 billion in home equity
loans from ITT Consumer Financial Corporation (ITT).
Interest expense increased $7.8 million (11%) for the first quarter of
1996 compared to the year ago period as the impact of the higher average
outstandings offset reduced borrowing rates. Other operating expenses in the
first quarter of 1996 increased $12.3 million (23%) over the first quarter of
1995 due primarily to increased expenses on disposition of repossessed assets,
amortization of intangibles acquired in the ITT acquisition and increased
advertising costs.
The provision for losses on receivables increased $6.1 million (30%) in
the first quarter of 1996 compared to the first three months of 1995 due to an
increase in net credit losses and an increase in the allowance for losses
relating to the non real estate portfolio (discussed below) offset in part by
the effects of a decrease in outstanding receivables, but declined $6.4
million (19%) from the fourth quarter of 1995 which included higher writeoffs
due to the consolidation and acceleration of California foreclosure activity.
Net credit losses in the first quarter of 1996 rose $15.3 million (81%)
over the same quarter a year ago. Net credit losses in the first quarter of
1996 included $8.1 million relating to the ITT portfolio. Excluding the
effects of the ITT portfolio, net credit losses in the first quarter of 1996
were $500,000 (4%) lower in the real estate portfolio but $7.7 million (100%)
higher in the non real estate portfolio. The non real estate receivable
portfolio has been affected by increasing levels of consumer bankruptcies.
Net credit losses as a percentage of average net outstandings were 2.81% in
the first quarter of 1996 versus 1.75% in the first quarter of 1995. The
increase in the percentage was affected by lower outstanding receivables at
March 31, 1996, in addition to the higher amounts of credit losses. There
were no net credit losses on the ITT portfolio in the first quarter of 1995.
Because future credit losses will depend on factors such as economic
conditions and the state of the real estate market, particularly in
California, the extent and timing of any change in the recent trend remains
uncertain.
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Net consumer finance receivables at March 31, 1996 and December 31, 1995
were $4.8 billion and $5.2 billion of which $3.9 billion and $4 billion were
real estate secured loans, principally first and second mortgages secured by
residential properties. Approximately 37% of the real estate secured loans
were located in California. The decrease in net receivables was primarily due
to the continuing runoff of the ITT loan portfolio.
Delinquent finance receivables, which are defined as receivables
contractually past due 60 days or more, were $147 million (2.92% of finance
receivables outstanding) at March 31, 1996 compared to $143.6 million (2.79%
of finance receivables outstanding) at December 31, 1995. Approximately one
half of the increase in the delinquency percentages is due to the effects of
lower outstanding receivables at March 31, 1996, with the remainder caused by
an increase in delinquency in the real estate portfolio of $5.2 million (5%)
and a decrease in delinquency in the non real estate portfolio of $1.8
million (4%).
Management has established an allowance for losses equal to 3.07% of net
consumer finance receivables outstanding at March 31, 1996 compared to 3.32%
at December 31, 1995; the decrease in the percentage reflects $8.1 million in
chargeoffs that had been anticipated on the ITT portfolio offset in part by an
increase in the allowance percentage on the non ITT portfolio from 2.83% to
2.88% which management considered to be prudent based on continued high
credit losses in the non real estate portfolio. Also contributing to the
decrease in the allowance percentage was an adjustment to the ITT purchase
price allocation in the first quarter of 1996 which had the effect of reducing
the allowance for losses on receivables by $8.1 million.
Accrual of interest and other finance charges is suspended on accounts
that become contractually past due more than 29 days. At March 31, 1996 and
December 31, 1995 such nonearning receivables, which exclude accounts in
foreclosure, amounted to $302.6 million and $308 million. Payments received
on accounts while in nonaccrual status are applied to principal and interest
income according to the terms of the loan.
When foreclosure proceedings begin on an account secured by real estate,
the account is moved from finance receivables to other assets and is written
down to the lower of the account balance or the fair value of the collateral
less estimated selling costs. After foreclosure, repossessed assets are
carried at the lower of cost or fair value less estimated selling costs.
Accounts in foreclosure and repossessed assets held for sale totaled $200.2
million at March 31, 1996, of which 64% pertained to California, compared to
$207.3 million at December 31, 1995, of which 69% pertained to California.
Because future improvements may be impacted by factors such as economic
conditions and the state of the real estate market, particularly in
California, the extent and timing of any change in the trend of foreclosures
and repossessed assets remains uncertain.
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Commercial Lending
Commercial lending net income for the first quarter of 1996 was $12.3
million compared to $14.3 million for the first quarter of 1995. Commercial
lending income before the amortization of goodwill was $14.7 million in the
first quarter of 1996 compared to $16.7 million in the first quarter of 1995.
Income, before the amortization of goodwill, for the first quarter of 1996
decreased $2.0 million (12%) from the first quarter of 1995. The decrease was
primarily due to the inclusion in the 1995 quarter of a $2.8 million after
tax gain on the sale of the consumer rediscount loan portfolio. Higher
operating expenses were offset by a lower provision for losses on receivables
during the first quarter of 1996. Margins were enhanced during the first
quarter of 1996 due to the higher spread between the indices at which the
commercial lending operation lent to customers versus the indices at which
funds were borrowed.
Revenues in the first quarter of 1996 decreased $6.8 million (7%) from
1995 primarily due to the gain on sale of the rediscount loan portfolio in
1995 and a lower average portfolio yield attributable to lower interest rates
in 1996 offset in part by higher average receivables outstanding.
Interest expense decreased $2.6 million (7%) in the first quarter of 1996
due to a lower average interest rate on borrowings. Operating expenses
increased $1.7 million (5%) mainly as a result of a $1.3 million ($800,000
after tax) provision for settlement of a legal matter and expenses incurred in
the equipment finance and lease division which began operations in the second
quarter of 1995. The increases were offset in part by reduced expenses
incurred in the management of the liquidating receivables and receivables
included in assets held for sale which were disposed of in 1995. The provision
for losses on receivables decreased $1.6 million (32%) due to reduced
expenses incurred in inventory finance and the management of the Puerto Rico
receivables which were sold in 1995. Credit losses, net of recoveries, on an
annualized basis as a percentage of average net receivables outstanding were
0.09% for the first quarter of 1996 compared to 0.76% for the first quarter of
1995. The decline was primarily due to the relatively higher level of credit
losses related to the consumer rediscount portfolio which was sold during the
first quarter of 1995.
Net commercial finance receivables outstanding increased $298.2 million
(10%) in 1996 from December 31, 1995. Net receivables increased in each of
the core businesses with the largest increase due to seasonal growth in the
inventory finance group. Management has established an allowance for losses
equal to 2.39% of net commercial finance receivables outstanding as of March
31, 1996 compared to 2.54% at December 31, 1995.
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Delinquent receivables are defined as the instalment balance for
inventory finance and asset based lending receivables and the outstanding loan
balance for all other receivables over 60 days past due. Delinquent
receivables were $6.3 million (0.20% of receivables outstanding) at March 31,
1996 compared to $8.2 million (0.28% of receivables outstanding) at December
31, 1995.
Nonearning receivables are defined as balances from borrowers that are
over 90 days delinquent or at such earlier time as full collectibility becomes
doubtful. Accrual of finance charges is suspended on nonearning receivables
until such time as past due accounts are collected. Nonearning receivables
were $15.4 million (0.48% of receivables outstanding) at March 31, 1996
compared to $15.5 million (0.53% of receivables outstanding) at December 31,
1995.
Leasing
Leasing net income for the first quarter of 1996 was $18.3 million
compared to $15.8 million for the first quarter of 1995. Leasing income
before the amortization of goodwill was $18.8 million in the first quarter of
1996 compared to $16.3 million in the first quarter of 1995. Leasing income
before the amortization of goodwill for the first quarter of 1996 increased
$2.5 million (15%) over the first quarter of 1995 mainly due to a favorable
resolution of an outstanding state tax issue amounting to $2.6 million.
Excluding the resolution of the state tax issue, earnings for the first
quarter of 1996 were flat. Earnings increased due to more on-hire units in
the refrigerated container, tank container and European trailer lines of
business and a larger portfolio of finance leases. These increases were
offset by lower earnings which resulted from lower standard container and
chassis utilization and per diem rates, plus a decline in rail trailer
earnings due to a smaller fleet size.
Revenue for the first quarter of 1996 increased $6.2 million (3%) over
the first quarter of 1995. The increase was primarily due to a larger on-hire
fleet of standard, refrigerated and tank containers, chassis and European
trailers. Revenue also increased due to a larger portfolio of finance leases.
Partially offsetting these revenue increases were lower revenues resulting
from lower per diem rates and utilization for standard container and chassis.
Rail trailer also reported lower revenues due to a smaller fleet size and less
on-hire units.
Expenses for the first quarter of 1996 increased $7.0 million (5%) over
the first quarter of 1995 mainly due to higher ownership and operating costs
of the larger refrigerated container, chassis and European trailer fleets.
The combined utilization of standard containers, refrigerated containers,
domestic containers, tank containers and chassis averaged 81% for the first
quarter of 1996 compared to 84% in the first quarter of 1995. Rail trailer
utilization was 79% for the first quarter of 1996 compared to 78% in the first
quarter of 1995. European trailer utilization was 92% for the first quarter
of 1996 compared to 96% in the first quarter of 1995.
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Page 12
Derivatives
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 its interest rate risk
with derivative financial instruments. These derivatives comprise primarily
interest rate swap agreements. The Company does not use derivative financial
instruments for trading or speculative purposes, nor is the Company a party to
any leveraged derivative contracts.
Derivative financial instruments with a notional amount of $798.5
million at March 31, 1996 and $764.4 million at December 31, 1995 and
designated as hedges of the Company's liabilities were outstanding.
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 March 31, 1996, the derivative
financial instruments discussed above were issued by financial institutions
rated A or better by one or more of the major credit rating agencies. At
March 31, 1996 and December 31, 1995 the fair value of the Company's
derivative financial instruments was a net obligation of $13.8 million and
$19.4 million comprising agreements with aggregate gross benefits of $3.1
million and $1.7 million and agreements with aggregate gross obligations of
$16.9 million and $21.1 million.
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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. 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)
Burton E. Broome
Vice President, Controller and Assistant Secretary
(Chief Accounting Officer)
Date: May 13, 1996
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EXHIBIT 12
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended
March 31,
1996 1995
(Dollar amounts in
millions)
Fixed charges:
Interest and debt expense $153.7 $146.7
One-third of rental expense 2.9 3.9
______ ______
Total $156.6 $150.6
====== ======
Earnings:
Consolidated income from
continuing operations $ 47.8 $ 46.9
Provision for income taxes 26.8 32.2
Fixed charges 156.6 150.6
______ ______
Total $231.2 $229.7
====== ======
Ratio of earnings from continuing
operations to fixed charges 1.48 1.53
==== ====
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 58
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,905
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,398
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 1,718
<TOTAL-LIABILITY-AND-EQUITY> 12,398
<SALES> 0
<TOTAL-REVENUES> 478
<CGS> 0
<TOTAL-COSTS> 60
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 154
<INCOME-PRETAX> 75
<INCOME-TAX> 27
<INCOME-CONTINUING> 48
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48
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</TABLE>
