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 June 30, 2000
Commission File Number 1-6798
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TRANSAMERICA FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-10977235
(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)
(415) 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 3 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 10, 2000: 1,464,285.
<PAGE>
Page 2
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 June
30, 2000 and 1999, 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, 1999. 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.
* * * * *
On July 21, 1999, Transamerica Corporation, which owns all of the
Company's outstanding common stock, completed its merger with a subsidiary of
AEGON N. V.(AEGON), a Netherlands based corporation. As a result, the Company is
now a subsidiary of AEGON.
On March 1, 2000, AEGON announced that it had completed a strategic
review of the Company's businesses acquired in connection with the acquisition
of Transamerica Corporation in July 1999 and that it had decided to make
strategic dispositions of these businesses.
On July 24, 2000, AEGON announced that general weakness within the
commercial finance market has made the sale of the core commercial lending
business units of the Company less attractive and that it currently intends to
continue operating these units. Strategic dispositions of other business units
are currently under consideration. AEGON also announced an agreement was signed
for the sale of Leasing's tank business for approximately $260 million, which
will result in a gain. This transaction is expected to close before the end of
the year.
On July 28, 2000, an agreement was signed for the sale of Leasing's North
American Intermodal business for approximately $675 million, which will result
in a gain. The assets to be sold will include additional equipment to be
purchased through the close of the transaction which is expected to occur before
the end of the year.
The consolidated ratios of earnings to fixed charges were computed by
dividing net income 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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Page 3
<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
-----------------
CONSOLIDATED BALANCE SHEET
(Amounts in millions except for share data)
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 139.8 $ 23.8
Finance receivables 9,726.9 9,434.6
Unearned fees (797.3) (726.0)
Allowance for losses (168.0) (144.5)
------------ ------------
8,761.6 8,564.1
Property and equipment, less accumulated depreciation of
$1,125.8 in 2000 and $1,510 in 1999:
Land, buildings and equipment 47.6 59.3
Equipment held for lease 2,134.3 3,020.5
Investments (cost of $78.6 in 2000 and
$56.7 in 1999) 115.7 88.7
Goodwill, less accumulated amortization of
$182.8 in 2000 and $191.3 in 1999 356.8 409.3
Assets held for sale 1,765.4 24.5
Other assets 619.8 732.6
------------ ------------
$ 13,941.0 $ 12,922.8
============ ============
Liabilities and Stockholder's Equity:
Debt:
Unsubordinated $ 10,320.3 $ 9,295.2
Subordinated 84.0 222.0
------------ ------------
Total Debt 10,404.3 9,517.2
Accounts payable and other liabilities 1,096.1 1,096.4
Income taxes payable 514.2 502.9
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 1,919.6 1,742.9
Retained earnings 41.3
Components of other cumulative
comprehensive income:
Net unrealized gain from investments marked to fair value 24.1 20.8
Foreign currency translation adjustments (31.9) (13.3)
------------ ------------
Total Stockholder's Equity 1,926.4 1,806.3
------------ ------------
$ 13,941.0 $ 12,922.8
============ ============
</TABLE>
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<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
----------------------
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollar amounts in millions)
<CAPTION>
Six months ended Three months ended
June 30, June 30,
2000 1999 2000 1999
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
REVENUES
Finance charges and other fees $ 539.1 $ 409.6 $ 282.7 $ 213.5
Leasing revenues 344.1 344.1 173.2 172.1
Gain on sale of business unit 15.3 15.3
Other 80.8 82.2 43.6 35.7
---------- ---------- ---------- ---------
Total revenues 964.0 851.2 499.5 436.6
EXPENSES
Interest and debt expense 299.5 219.1 155.8 109.6
Depreciation on equipment held for lease 151.9 146.8 76.0 74.3
Salaries and other operating expenses 349.5 331.6 176.3 162.4
Provision for expected losses on disposal of business units 78.4 78.4
Provision for losses on receivables 57.9 39.7 32.6 18.8
---------- ---------- ---------- ---------
Total expenses 937.2 737.2 519.1 365.1
Income (loss) before income taxes 26.8 114.0 (19.6) 71.5
Income taxes 11.5 44.9 2.2 26.8
---------- ---------- ---------- ---------
Net income (loss) $ 15.3 $ 69.1 $ (21.8) $ 44.7
========== ========== ========== =========
Ratio of earnings to fixed charges 1.09 1.49
==== ====
</TABLE>
<PAGE>
Page 5
<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
-----------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in millions)
<CAPTION>
Six months ended
June 30,
2000 1999
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 15.3 $ 69.1
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 169.8 162.1
Provision for losses on receivables 57.9 39.7
Change in accounts payable and other liabilities 44.3 78.0
Change in income taxes payable 11.3 39.2
Losses (gain) on disposal of business units 78.4 (15.3)
Other (10.2) (72.0)
----------- ----------
Net cash provided by operating activities 366.8 300.8
INVESTING ACTIVITIES
Finance receivables originated (14,991.9) (12,509.4)
Finance receivables collected and sold 13,779.8 11,951.7
Purchase of property and equipment (167.6) (253.3)
Sales of property and equipment 71.5 30.1
Proceeds from sale of Transamerica HomeFirst 200.0
Other 53.0 130.0
----------- ----------
Net cash used by investing activities (1,255.2) (450.9)
FINANCING ACTIVITIES
Proceeds from debt financing 4,624.4 3,495.1
Payment of debt (3,740.1) (3,276.0)
Capital contribution 196.1 42.5
Cash dividend paid (56.6) (89.7)
Return of capital (19.4)
----------- ----------
Net cash provided by financing activities 1,004.4 171.9
----------- ----------
Increase in cash and cash equivalents 116.0 21.8
Cash and cash equivalents at beginning of year 23.8 51.2
----------- ----------
Cash and cash equivalents at end of period $ 139.8 $ 73.0
=========== ==========
</TABLE>
<PAGE>
Page 6
<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
-----------------
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(Amounts in millions)
<CAPTION>
Six months ended
June 30,
2000 1999
--------- ------
<S> <C> <C>
Balance at beginning of year $ 41.3 $ 48.0
Net income 15.3 69.1
Dividend declared and paid (56.6) (89.7)
--------- --------
Balance at end of period $ 0.0 $ 27.4
========= ========
</TABLE>
Item 2. Management's Narrative Analysis of Results of Operations
On July 21, 1999, Transamerica Corporation, which owns all of the
Company's outstanding stock, completed its merger with a subsidiary of AEGON N.
V. (AEGON), a Netherlands based corporation. As a result, Transamerica Finance
Corporation (the "Company") is now a subsidiary of AEGON.
On March 1, 2000, AEGON announced that it had completed a strategic
review of the Company's businesses acquired in connection with the acquisition
of Transamerica Corporation in July 1999 and that it had decided to make
strategic dispositions of these businesses.
On July 24, 2000, AEGON announced that general weakness within the
commercial finance market has made the sale of the core commercial lending
business units of the Company less attractive and that it currently intends to
continue operating these units. Strategic dispositions of other business units
are currently under consideration. AEGON also announced an agreement was signed
for the sale of Leasing's tank business for approximately $260 million, which
will result in a gain. This transaction is expected to close before the end of
the year.
On July 28, 2000, an agreement was signed for the sale of Leasing's North
American Intermodal business for approximately $675 million, which will result
in a gain. The assets to be sold will include additional equipment to be
purchased through the close of the transaction which is expected to occur before
the end of the year.
The following table sets forth revenues and income (loss) by line of
business:
<TABLE>
REVENUES AND INCOME (LOSS) BY LINE OF BUSINESS
(Amounts in millions)
<CAPTION>
Six months ended June 30, Second Quarter
Revenues Income Income (loss)
2000 1999 2000 1999 2000 1999
---------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial lending * $ 615.3 $ 467.3 $ 16.4 $ 55.3 $ (17.7) $ 33.4
Leasing * 348.7 360.3 11.0 16.2 1.4 6.5
Other 23.6 (2.9) 6.9 (0.6) 9.4
Amortization of goodwill (9.2) (9.3) (4.9) (4.6)
---------- -------- ------- -------- -------- --------
$ 964.0 $ 851.2 $ 15.3 $ 69.1 $ (21.8) $ 44.7
========== ======== ======= ======== ======== ========
<FN>
* Effective January 1, 2000, Leasing's Structured Finance operation, renamed
International Equipment Finance, is included with Commercial Lending's
Equipment Financial Services operation. 1999 amounts have been restated to
conform to the 2000 presentation.
</FN>
</TABLE>
<PAGE>
Page 7
Commercial Lending
The commercial lending business makes commercial loans through three
operations: distribution finance, business credit and equipment financial
services. Commercial lending results for the first half and second quarter of
2000 were net income of $8.2 million and net loss of $22.1 million compared to
net income of $47 million and $29.3 million for the comparable periods of 1999.
Income, before the amortization of goodwill, for the first half and second
quarter of 2000 declined $38.9 million (70%) and $51.1 million (153%) from
comparable prior year periods.
Operating results for the second quarter of 2000 included a $78.4 million
charge ($58 million after tax) resulting from the decision to exit the consumer
mortgage and insurance premium finance businesses. The provision is primarily
for the write off of related goodwill and for the reduction of the net carrying
value of the receivable portfolios to their estimated realizable value. The net
receivables of these operations totalled $950.8 million and have been
reclassified as assets held for sale. Operating results for the first half and
second quarter of 2000 included after tax gains of $11.6 million and $5.8
million from the sale of a portion of stock received from the exercise of stock
warrants by the business credit operation. Also included in second quarter 2000
results was a $1.7 million after tax charge resulting from accelerated
amortization of premiums from unwinding the $150 million retail revolving credit
card securitization. The higher cost of renewing this securitization program was
the primary factor which led to the decision to no longer finance the
receivables off balance sheet. Operating results for the six months ended June
30,1999 included after tax gains of $2.2 million resulting from the sale of
stock received from the exercise of stock warrants and $1.7 million from the
sale and securitization of inventory floorplan, equipment lease finance, and
retail revolving credit card receivables. Operating results for the second
quarter 1999 included after tax gains of $1.2 million on the sale and
securitization of the retail revolving credit card, inventory floorplan and
equipment lease finance receivables and $300,000 from the sale of stock.
Excluding the above items, commercial lending income before the amortization of
goodwill for the first six months and second quarter of 2000 increased $13.1
million (25%) and $4.3 million (13%) over the comparable prior year periods.
Higher average net receivables outstanding contributed to the growth in
operating income.
Revenues in the first half and second quarter of 2000 increased $148
million (32%) and $81.3 million (34%) over the corresponding 1999 periods
principally as a result of growth in average net receivables outstanding.
Revenues in the first half and second quarter of 2000 included $18.4 million and
$9.2 million of gains on the sale of stock compared to $3.4 million and $400,000
for the corresponding 1999 periods.
Interest expense increased $89.7 million (60%) and $50.6 million (66%) in
the first half and second quarter of 2000 due to higher average debt levels
needed to support receivable growth and a higher average interest rate on
borrowings. Operating expenses for the first half and second quarter of 2000
increased $11.5 million (6%) and $7 million (8%) over prior year periods mainly
as a result of higher business volume. The provision for losses on receivables
for the first half and second quarter of 2000 increased $18.1 million (46%) and
$13.7 million (73%) from the corresponding 1999 periods principally as a result
of increased delinquent and nonearning 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 .54% for the
first half and second quarter of 2000 compared to .83% and .75% for the
comparable periods of 1999.
Net commercial finance receivables outstanding at June 30, 2000 increased
$221 million (3%) from December 31, 1999. During the second quarter of 2000 the
commercial lending operation reclassified its consumer mortgage and insurance
premium finance net receivables totaling $950.8 million to assets held for sale.
Excluding the reclassification effect, net commercial finance receivables at
June 30, 2000 increased by $1,171.8 million (13%) from December 31, 1999.
Management has established an allowance for losses equal to 1.88% of net
commercial finance receivables outstanding as of June 30, 2000 compared to 1.66%
at December 31, 1999.
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Page 8
Effective in the second quarter 2000, the policies used for the
determination of delinquent and nonearning receivables for the international
equipment finance receivables have been revised to provide greater consistency
among the company's receivable portfolios. It is management's view that the new
methodology provides a better and more meaningful assessment of the condition of
the portfolio. Delinquent and nonearning data presented as of December 31, 1999
has been restated.
Delinquent receivables are defined as instalments for inventory finance
and business credit asset based lending receivables more than 60 days past due
and the outstanding loan balance for all other receivables over 60 days past
due. At June 30, 2000, delinquent receivables were $119.7 million (1.23% of
receivables outstanding) compared to $139.6 million (1.48% of receivables
outstanding) at December 31, 1999.
Nonearning receivables are defined as balances from borrowers that are
more than 90 days delinquent for non credit card receivables or at such earlier
time as full collectibility becomes doubtful. Nonearning receivables on
revolving credit card accounts are defined as balances from borrowers in
bankruptcy and accounts for which full collectibility is doubtful. Accrual of
finance charges is suspended on nonearning receivables until such time as past
due amounts are collected. Nonearning receivables were $149 million (1.53% of
receivables outstanding) at June 30, 2000 compared to $136.3 million (1.44% of
receivables outstanding) at December 31, 1999. Delinquent and nonearning
receivables at June 30, 2000 exclude amounts related to the consumer mortgage
and insurance premium finance receivables due to the reclassification to assets
held for sale.
Assets held for sale as of June 30, 2000 totalled $912.9 million and
consisted of consumer mortgage receivables of $ 630.3 million, insurance premium
finance receivables of $320.5 million, other repossessed assets of $9.4 million,
and a valuation allowance of $47.3 million. Assets held for sale at December
31,1999 totaled $7.2 million, net of a $1.7 million valuation allowance. Of the
finance receivables held for sale at June 30, 2000, $39.1 million (4.1% of
receivables held for sale) were more than 60 days past due and $31.1 million
(3.3% of receivables held for sale) were classified as nonearning.
Leasing
Leasing comprises the company's marine containers and European trailer
operations. Leasing signed agreements in July to sell its tank container and
domestic products businesses and correspondingly has reclassified those net
assets to assets held for sale at June 30, 2000. Leasing's net income for the
first half and second quarter of 2000 was $10 million and $0.9 million compared
to $15.1 million and $5.9 million for the first half and second quarter of 1999.
Income before the amortization of goodwill for the first half and second
quarter of 2000 was $11 million and $1.4 million compared to $16.2 million and
$6.5 million for the first half and second quarter of 1999. Operating results
for the first quarter 2000 included $9.5 million in net tax benefits associated
with a structured equipment financing of certain European trailer equipment.
Results for the first quarter of 1999 included a $4.9 million after-tax benefit
from the termination of a leverage lease. Excluding the above items, operating
income, before the amortization of goodwill, for the first half and second
quarter of 2000 was $1.5 million and $1.4 million compared to $11.3 million and
$6.5 million for the comparable prior year periods. For both the first half and
second quarter of 2000, earnings were negatively impacted year to year by a
continued decline in marine (special, dry and refrigerated) and tank container
per-diem rates and higher marine operating costs as a result of higher strategic
positioning expenditures. Lower earnings were also experienced in rail trailers
due to lower rail units on-hire. Additionally, European trailer experienced
lower earnings as a result of lower per-diem rates and higher operating costs.
Revenues for the first half and second quarter of 2000 decreased $11.6
million (3%) and increased $0.1 million (-%) versus the comparable prior year
periods. For both the first half and second quarter of 2000, the continued trade
imbalance between Asia, Europe and the United States and an oversupply of marine
container equipment continued to negatively impact per-diem rates and revenues.
Lower revenues were also experienced in special containers due to lower demand
for this equipment type and in rail trailers due to a continuing decline in the
rail units on-hire and total fleet size. Lower revenue was also experienced in
European trailer as a result of lower per-diem rates. Partially offsetting these
decreases were higher revenues from a larger chassis fleet and more on-hire
units.
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Page 9
Expenses for the first half and second quarter of 2000 increased $12.5
million (4%) and $8.8 million (5%) over the corresponding 1999 periods as a
result of greater strategic positioning expenditures associated with the
movement of dry container equipment to meet anticipated demand in the Asian
market and higher ownership costs associated with a larger chassis fleet. Higher
operating expenses were experienced in European trailer as a result of a larger
fleet.
The utilization of marine containers was 77% for both the first half and
second quarter of 2000 compared to 74% and 73% for the comparable prior year
periods. European trailer utilization was 81% and 82% for the first half and
second quarter of 2000 compared to 80% for the comparable prior year periods.
The utilization of tank containers was 81% for both the first half and second
quarter of 2000 compared to 77% and 76% for the comparable prior year periods.
Domestic products utilization was 92% for both the first half and second quarter
of 2000 compared to 91% for the comparable prior year periods.
Assets held for sale at June 30, 2000 totalled $852.5 million and
consisted of tank containers and domestic products equipment held for lease of
$800.4 million and accounts receivable and other net assets of $52.1 million.
Assets held for sale at December 31, 1999 totalled $17.3 million.
Other
The decline in the results in other operations compared to the first half
and second quarter of 1999 was primarily due to a $15.3 million ($11 million
after-tax) gain on the sale of Transamerica HomeFirst in June 1999.
Comprehensive Income
<TABLE>
In accordance with Financial Accounting Standard No. 130, Reporting
Comprehensive Income, comprehensive income for the six months and second quarter
ended June 30, 2000 and 1999 comprised (amounts in millions):
<CAPTION>
Six months ended Three months ended
June 30, June 30,
2000 1999 2000 1999
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ 15.3 $ 69.1 $ (21.8) $ 44.7
Other comprehensive income, net of tax:
Change in net unrealized gains from
investments marked to fair value 3.3 (4.5)
Foreign currency translation adjustments (18.6) (13.7) (14.8) 3.7
-------- --------- --------- --------
Comprehensive income (loss) $ 0.0 $ 55.4 $ (41.1) $ 48.4
======== ========= ========= ========
</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 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.
Derivative financial instruments with a notional amount of $2.4 billion
at June 30, 2000 and $2.8 billion at December 31, 1999 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 June 30, 2000, 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 June 30, 2000 and December 31, 1999 was a net
obligation of $25.8 million and $20.6 million comprising agreements with
aggregate gross obligations of $33.2 million and $28.2 million and agreements
with aggregate gross benefits of $7.4 million and $7.6 million.
<PAGE>
Page 10
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.
On August 4, 2000 TFC reported that AEGON had issued a guarantee
of all newly issued debt under TFC's $4.5 billion United States
commercial paper program.
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)
George B. Sundby
Senior Vice President and Chief Financial Officer
(Chief Accounting Officer)
Date: August 11, 2000
