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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1998
Commission File Number 1-6798
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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, 1998: 1,464,285 shares.
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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, 1998 and 1997, and the balance sheet as of December 31,
1997 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, 1997. 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 interim periods are not necessarily
indicative of the results for the entire year for most of the Company's
businesses.
* * * * *
Effective January 1, 1998, the Company adopted the provisions of
American Institute of Certified Public Accountants Statement of Position No.
98-1 which requires, among other things, that payroll costs incurred in the
development of computer software systems be capitalized. The effect of adoption
on first quarter consolidated income was immaterial.
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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<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
-------------
CONSOLIDATED BALANCE SHEET
Assets
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Cash and cash equivalents $ 34.7 $ 70.1
Finance receivables 5,217.2 4,333.4
Less unearned fees ($378.8 in 1998 and
$340.8 in 1997) and allowance for losses 489.7 430.1
---------- ----------
4,727.5 3,903.3
Property and equipment - less accumulated
depreciation of $1,153.8 in 1998
and $1,190.5 in 1997:
Land, buildings and equipment 25.1 25.1
Equipment held for lease 2,977.5 2,996.5
Goodwill, less accumulated amortization of
$159.6 in 1998 and $156.2 in 1997 386.9 423.0
Assets held for sale 75.5 377.8
Net assets of discontinued operations 50.4 40.1
Other assets 754.3 889.6
---------- ----------
$ 9,031.9 $ 8,725.5
========== ==========
(Amounts in millions)
</TABLE>
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<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
-------------
CONSOLIDATED BALANCE SHEET (Continued)
Liabilities and Stockholder's Equity
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Debt:
Unsubordinated $ 5,814.7 $ 5,341.5
Subordinated 582.7 683.7
---------- ----------
Total debt 6,397.4 6,025.2
Accounts payable and other liabilities 860.6 1,034.7
Income taxes 407.6 362.4
Stockholder'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 1,339.2 1,300.9
Retained earnings 27.5
Component of other cumulative
comprehensive income:
Foreign currency translation adjustments (15.0) (12.3)
---------- ----------
1,366.3 1,303.2
---------- ----------
$ 9,031.9 $ 8,725.5
========== ==========
(Amounts in millions except for share data)
</TABLE>
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<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
---------------
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Three months ended
March 31,
1998 1997
<S> <C> <C>
REVENUES
Finance charges and other fees $ 167.1 $ 123.3
Leasing revenues 185.7 189.0
Other 19.5 16.4
---------- ----------
372.3 328.7
EXPENSES
Interest and debt expense 94.3 81.9
Depreciation on equipment held for lease 67.5 67.5
Provision for losses on receivables 13.6 3.6
Salaries and other operating expenses 155.2 121.5
---------- ----------
330.6 274.5
---------- ----------
41.7 54.2
Income taxes 14.2 19.1
---------- ----------
Income from continuing operations
and net income $ 27.5 $ 35.1
========== ==========
Ratio of earnings to fixed charges 1.41 1.61
==== ====
(Amounts in millions)
</TABLE>
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<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Three months ended
March 31,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $ 27.5 $ 35.1
Adjustments to reconcile income from continuing
operations to net cash provided by
operating activities:
Depreciation and amortization 72.8 72.8
Provision for losses on receivables 13.6 3.6
Amortization of discount on long-term debt 2.9 2.6
Change in accounts payable and other liabilities (166.7) 70.3
Change in income taxes payable 50.1 12.7
Other 181.0 (90.9)
--------- ----------
Net cash provided by operations 181.2 106.2
INVESTING ACTIVITIES
Finance receivables originated (4,791.9) (4,234.4)
Finance receivables collected 4,582.7 3,851.7
Purchase of property and equipment (86.9) (75.9)
Sales of property and equipment 36.3 29.0
Proceeds from the portfolio sales of and cash
transactions with discontinued operations (7.2) 405.3
Purchase of finance receivables from
Whirlpool Financial Corporation (351.9)
Other (2.6) (6.3)
--------- ----------
Net cash used by investing activities (621.5) (30.6)
FINANCING ACTIVITIES
Proceeds from debt financing 956.8 2,193.3
Payments of debt (590.2) (2,551.4)
Capital contributions from parent 38.3
Cash dividends paid (64.1)
--------- ----------
Net cash provided (used) by investing activities 404.9 (422.2)
--------- ----------
Decrease in cash and cash
equivalents (35.4) (346.6)
Cash and cash equivalents at beginning
of year 70.1 398.5
--------- ----------
Cash and cash equivalents at end of period $ 34.7 $ 51.9
========= ==========
(Amounts in millions)
</TABLE>
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<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
-----------------
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
<CAPTION>
Three months ended
March 31,
1998 1997
<S> <C> <C>
Balance at beginning of year $ $ 117.7
Net income 27.5 35.1
Dividends (64.1)
-------- --------
Balance at end of period $ 27.5 $ 88.7
======== ========
</TABLE>
Item 2. Management's Narrative Analysis of Results of Operations
<TABLE>
REVENUES AND INCOME BY LINE OF BUSINESS
<CAPTION>
Three months ended March 31,
Revenues Income
1998 1997 1998 1997
(Amounts in millions)
<S> <C> <C> <C> <C>
Commercial lending $ 164.6 $ 117.4 $ 18.0 $ 21.2
Leasing 203.2 207.7 15.6 15.8
Other 4.5 3.6 (2.7) 1.3
Amortization of goodwill (3.4) (3.2)
-------- -------- -------- --------
$ 372.3 $ 328.7 $ 27.5 $ 35.1
======== ======== ======== ========
</TABLE>
Commercial Lending
Commercial lending net income for the first quarter of 1998 was $15.1
million compared to $18.5 million for the first quarter of 1997. Income, before
the amortization of goodwill, for the first quarter of 1998 was $18 million, a
decrease of $3.2 million (15%) from the first quarter of 1997. Operating results
for the 1998 period included a $3.2 million operating loss from the retail
businesses (which consist of the credit card portfolio acquired from Whirlpool
Financial Corporation in 1998 and the retained residential mortgage lending
businesses), a $2.1 million after tax charge for losses and the restructuring of
the insurance premium finance business, and a $2.1 million after tax gain on the
sale and securitization of $300 million of floorplan receivables. The first
quarter of 1997 operating results included a $3.2 million tax benefit from the
resolution of prior years' tax matters. A higher net margin due to higher
average receivables owned and serviced in the first quarter of 1998 and a $3
million tax benefit from the resolution of prior year tax matters were offset in
part by higher operating expenses and a higher provision for losses on
receivables.
Revenues in the first quarter of 1998 increased $47.2 million (40%)
over the first quarter of 1997 principally as a result of growth in average net
receivables outstanding owned and serviced.
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Interest expense increased $7.5 million (18%) in the first quarter of 1998
due to a higher average interest rate on borrowings and to higher average
outstanding debt as a result of growth in average net receivables. Operating
expenses rose $34.7 million (80%) in the first quarter of 1998 compared to the
first quarter of 1997 mainly as a result of costs related to the integration of
the Whirlpool Financial operations and higher business volume. The provision for
losses on receivables increased $10 million due primarily to higher credit
losses relating to the retail portfolio and additional provisions for the
insurance premium finance portfolio. Credit losses, net of recoveries, on an
annualized basis as a percentage of average net receivables outstanding were
0.57% for the first quarter of 1998 compared to 0.17% for the first quarter of
1997.
Net commercial finance receivables outstanding at March 31, 1998
increased $858.6 million (24%) from December 31, 1997. The increase in
receivables was largely a result of a decision not to sell the insurance premium
finance operation and the reclassification of those receivables from assets held
for sale to finance receivables, and the acquisitions during the first quarter
of 1998 of the retail finance business and most of the remaining international
assets from Whirlpool Financial Corporation which amounted to $352 million in
net receivables. This completed the acquisition of $1.1 billion in net
receivables and other assets representing substantially all of the inventory and
retail finance business from Whirlpool Financial Corporation. The total purchase
price was $1.3 billion in cash subject to post closing adjustments. During the
first quarter of 1998 the distribution finance operation also securitized $300
million of floorplan finance receivables.
Management has established an allowance for losses equal to 2.37% of
net commercial finance receivables outstanding as of March 31, 1998 compared to
2.35% at December 31, 1997.
Delinquent receivables, which are defined as instalments for inventory
finance and asset based lending receivables more than 60 days past due and the
outstanding loan balance for all other receivables more than 60 days past due,
were $39.1 million (0.84% of receivables outstanding) at March 31, 1998 compared
to $18 million (0.48% of receivables outstanding) at December 31, 1997.
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 $41.8 million (0.90% of receivables outstanding) at March
31, 1998 compared to $26.4 million (0.71% of receivables outstanding) at
December 31, 1997.
The increase in both nonearning and delinquent receivables at March 31,
1998 was due to the inclusion of the insurance premium finance receivables which
were reported as assets held for sale at December 31, 1997, and the receivables
of the new retail lending operation. Delinquent and nonearning insurance premium
finance receivables at December 31, 1997 were $14.2 million and $7.5 million.
Leasing
In the first quarter of 1998, the leasing operation reported net income
of $15.1 million compared to $15.3 million in the first quarter of 1997. Leasing
income, before the amortization of goodwill, was $15.6 million in the first
quarter of 1998 compared to $15.8 million in the first quarter of 1997. Earnings
for 1998 were lower as a result of a smaller fleet size and fewer units on hire
in the rail trailer business and lower earnings from the structured finance
business due to tightening interest rate spreads. Offsetting some of these
decreases in earnings were favorable results from standard containers due to
lower ownership and operating costs resulting from a smaller fleet.
Revenue for the first quarter of 1998 decreased $4.5 million (2%) as
compared to the first quarter of 1997. Revenue decreased in the standard
container and rail trailer businesses due to lower per diem rates and to fewer
units on hire resulting from smaller fleets. Partially offsetting these
decreases were higher revenues from European trailer due to a larger fleet size.
Expenses for the first quarter of 1998 decreased $4.2 million (2%)
mainly due to lower ownership and operating costs associated with a smaller
fleet of standard containers and rail trailers.
The combined utilization of standard containers, refrigerated
containers, domestic containers, tank containers and chassis averaged 79% for
the first quarter of 1998 compared to 78% in the first quarter of 1997. Rail
trailer utilization was 79% for the first quarter of 1998 compared to 83% in the
first quarter of 1997. European trailer utilization was 90% for the first
quarter of 1998 compared to 91% in the first quarter of 1997.
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Other
Other operating results for the first three months of 1998 decreased
$4.0 million as compared to the first quarter of 1997. The decrease was
primarily due to the manner in which the Company allocates interest on
intercompany debt among its subsidiaries.
Discontinued Operations
In the first quarter of 1998 and 1997 results from discontinued
operations were break even.
Comprehensive Income
In accordance with Financial Accounting Standard No. 130, Reporting
Comprehensive Income, comprehensive income for the three months ended March 31,
1998 and 1997 comprised:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net income $ 27.5 $ 35.1
Change in foreign currency
transaction adjustments (2.7) (5.6)
------ ------
Comprehensive income $ 24.8 $ 29.5
====== ======
</TABLE>
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 Transamerica'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 $1.2 billion
at March 31, 1998 and $1.3 billion at December 31, 1997 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, 1998, 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. The fair value of the
Company's liability hedges at March 31, 1998 and December 31, 1997 was a net
benefit of $48.8 million and $39.7 million comprising agreements with aggregate
gross benefits of $49.8 million and $40.7 million and agreements with aggregate
gross obligations of $1 million and $1 million.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
12 Computation of Ratio Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K.
On January 16th, the Company reported effective January 1, 1998,
principally through its indirect subsidiary Transamerica Distribution Finance
Corporation that it had completed the acquisition of substantially all of the
inventory and retail finance business of Whirlpool Financial Corporation for a
total purchase price of $1.3 billion in cash, subject to post closing
adjustments, which was determined through negotiations with Whirlpool.
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 and Controller
(Chief Accounting Officer)
Date: May 12, 1998
<PAGE>
EXHIBIT 12
<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Three Months Ended March 31
1998 1997
(Dollar amounts in millions)
<S> <C> <C>
Fixed charges:
Interest and debt expense $ 94.3 $ 81.9
One-third of rental expense 6.5 6.3
---------- ----------
Total $ 100.8 $ 88.2
========== ==========
Earnings:
Income from continuing operations $ 27.5 $ 35.1
Provision for income taxes 14.2 19.1
Fixed charges 100.8 88.2
---------- ----------
Total $ 142.5 $ 142.4
========== ===========
Ratio of earnings to fixed charges 1.41 1.61
==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 35
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,003
<DEPRECIATION> 1,154
<TOTAL-ASSETS> 9,032
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 1,351
<TOTAL-LIABILITY-AND-EQUITY> 9,032
<SALES> 0
<TOTAL-REVENUES> 372
<CGS> 0
<TOTAL-COSTS> 68
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> 42
<INCOME-TAX> 14
<INCOME-CONTINUING> 28
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
