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 September 30, 2000
Commission File Number 1-6798
------------------
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 November 8, 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 September 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 had made the sale of the core commercial lending
business units of the Company less attractive and that it intended to continue
operating these units. Strategic dispositions of non core units are currently
under consideration.
On August 16, 2000, the commercial lending operation sold assets
consisting of consumer mortgage receivables at their net carrying value of
$536.1 million. On September 28, 2000, the leasing operation sold its tank
container business. The tank container transaction generated proceeds of $263.7
million and a pretax gain of $5 million ($3.2 million after tax).
On October 24, 2000, Leasing's domestic products business was sold for
$672.4 million and will result in an after tax gain of approximately $35 million
in the fourth quarter of 2000.
Proceeds from these asset sales were used to pay down related debt and to
return capital to Transamerica Corporation.
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.
<PAGE>
Page 3
<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
-----------------
CONSOLIDATED BALANCE SHEET
(Amounts in millions except for share data)
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 104.3 $ 23.8
Finance receivables 9,026.5 9,434.6
Unearned fees (824.3) (726.0)
Allowance for losses (157.6) (144.5)
------------ ------------
8,044.6 8,564.1
Property and equipment, less accumulated depreciation
of $1,135.8 in 2000 and $1,510 in 1999:
Land, buildings and equipment 41.6 59.3
Equipment held for lease 2,060.6 3,020.5
Investments (cost of $80.5 in 2000 and
$56.7 in 1999) 146.1 88.7
Goodwill, less accumulated amortization of
$182.7 in 2000 and $191.3 in 1999 325.9 409.3
Assets held for sale 2,008.8 24.5
Other assets 568.0 732.6
------------ ------------
$ 13,299.9 $ 12,922.8
============ ============
Liabilities and Stockholder's Equity:
Debt:
Unsubordinated $ 9,751.3 $ 9,295.2
Intercompany with AEGON affiliates 100.0
Subordinated 84.0 222.0
------------ ------------
Total Debt 9,935.3 9,517.2
Accounts payable and other liabilities 1,108.8 1,096.4
Income taxes payable 488.5 502.9
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 1,821.6 1,742.9
Retained earnings (deficit) (69.4) 41.3
Components of other cumulative
comprehensive income:
Net unrealized gain from investments marked to fair value 42.7 20.8
Foreign currency translation adjustments (42.2) (13.3)
------------ ------------
Total Stockholder's Equity 1,767.3 1,806.3
------------ ------------
$ 13,299.9 $ 12,922.8
============ ============
</TABLE>
<PAGE>
Page 4
<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
----------------------
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollar amounts in millions)
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
REVENUES
Finance charges and other fees $ 801.4 $ 629.0 $ 262.3 $ 219.4
Leasing revenues 511.5 518.0 167.4 173.9
Gain on sale of business units 5.0 15.3 5.0
Other 120.3 112.8 39.5 30.6
---------- ---------- ---------- ---------
Total revenues 1,438.2 1,275.1 474.2 423.9
EXPENSES
Interest and debt expense 457.9 327.5 158.4 108.4
Depreciation on equipment held for lease 226.6 222.4 74.7 75.6
Salaries and other operating expenses 514.8 496.1 165.3 164.5
Provision for expected losses on disposal of business units 231.6 153.2
Provision for losses on receivables 83.2 60.2 25.3 20.5
---------- ---------- ---------- ---------
Total expenses 1,514.1 1,106.2 576.9 369.0
Income (loss) before income taxes (75.9) 168.9 (102.7) 54.9
Income tax provision (benefit) (21.8) 66.1 (33.3) 21.2
---------- ---------- ---------- ---------
Net income (loss) $ (54.1) $ 102.8 $ (69.4) $ 33.7
========== ========== ========== =========
Ratio of earnings to fixed charges 0.84 1.49
==== ====
</TABLE>
<PAGE>
Page 5
<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
-----------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in millions)
<CAPTION>
Nine months ended
September 30,
2000 1999
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (54.1) $ 102.8
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 254.9 247.0
Provision for losses on receivables 83.2 60.2
Change in accounts payable and other liabilities 46.6 145.9
Change in income taxes payable (11.5) 52.6
Realized gains on sale of business units (5.0) (15.3)
Provision for expected losses
on disposal of business units 231.6
Other 15.1 (46.2)
----------- ----------
Net cash provided by operating activities 560.8 547.0
INVESTING ACTIVITIES
Finance receivables originated (22,230.4) (19,538.9)
Finance receivables collected and sold 20,637.5 18,301.8
Purchase of property and equipment (192.0) (319.5)
Sales of property and equipment 83.4 47.9
Proceeds from sale of consumer mortgage receivables 536.1
Proceeds from sale of tank containers 263.7
Proceeds from sale of Transamerica HomeFirst 200.0
Other (22.7) 74.6
----------- ----------
Net cash used by investing activities (924.4) (1,234.1)
FINANCING ACTIVITIES
Proceeds from debt financing 4,781.9 5,382.9
Payment of debt (4,359.9) (4,612.6)
Capital contribution 298.1 98.8
Cash dividend paid (56.6) (114.7)
Return of capital (219.4)
----------- ----------
Net cash provided by financing activities 444.1 754.4
----------- ----------
Increase in cash and cash equivalents 80.5 67.3
Cash and cash equivalents at beginning of year 23.8 51.2
----------- ----------
Cash and cash equivalents at end of period $ 104.3 $ 118.5
=========== ==========
</TABLE>
<PAGE>
Page 6
<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
-----------------
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (DEFICIT)
(Amounts in millions)
<CAPTION>
Nine months ended
September 30,
2000 1999
--------- --------
<S> <C> <C>
Retained earnings at beginning of year $ 41.3 $ 48.0
Net income (loss) (54.1) 102.8
Dividend declared and paid (56.6) (114.7)
--------- --------
Retained earnings (deficit) at end of period $ (69.4) $ 36.1
========= ========
</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 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 had made the sale of the core commercial lending
business units of the Company less attractive and that it intended to continue
operating these units. Strategic dispositions of non core units are currently
under consideration.
On August 16, 2000, the commercial lending operation sold assets
consisting of consumer mortgage receivables at their net carrying value of
$536.1 million. On September 28, 2000, the leasing operation sold its tank
container business. The tank container transaction generated proceeds of $263.7
million and a pretax gain of $5 million ($3.2 million after tax).
On October 24, 2000, Leasing's domestic products business was sold for
$672.4 million and will result in an after tax gain of approximately $35 million
in the fourth quarter of 2000.
Proceeds from these asset sales were used to pay down related debt and to
return capital to Transamerica Corporation.
<PAGE>
Page 7
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>
Nine months ended September 30, Third Quarter
Revenues Income (loss) Income (loss)
2000 1999 2000 1999 2000 1999
---------- ---------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial lending * $ 926.2 $ 713.7 $ (45.9) $ 90.1 $ (62.3) $ 34.8
Leasing * 512.0 537.7 9.4 20.7 (1.6) 4.5
Other 23.7 (4.3) 5.7 (1.4) (1.2)
Amortization of goodwill (13.3) (13.7) (4.1) (4.4)
---------- ---------- ------- -------- -------- --------
$ 1,438.2 $ 1,275.1 $ (54.1) $ 102.8 $ (69.4) $ 33.7
========== ========== ======= ======== ======== ========
<FN>
* Effective January 1, 2000, Leasing's Structured Finance operation, renamed
International Structured Finance, is included with Commercial Lending's
Equipment Financial Services operation. 1999 amounts have been restated to
conform to the 2000 presentation.
</FN>
</TABLE>
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 nine months and third quarter
of 2000 were losses of $57.7 million and $65.9 million compared to net income of
$77.9 million and $30.9 million for the comparable periods of 1999. Operating
results, before the amortization of goodwill, for the first nine months and
third quarter of 2000 declined $136 million (151%) and $97.1 million (279%) from
comparable prior year periods.
Operating results for the nine months and third quarter ended September
30, 2000 included a charge of $231.6 million ($159.2 million after tax) and
$153.2 million ($101.2 million after tax) resulting from the decision to exit
the consumer mortgage and insurance premium finance businesses in the second
quarter, and the retail finance and small business administration loan
businesses in the third quarter. The provisions are 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 totaling $2,043.3 million were reclassified to assets held
for sale. During the third quarter of 2000, the commercial lending operation
sold assets consisting of consumer mortgage receivables at their net carrying
value of $536.1 million. Operating results for the first nine months and third
quarter of 2000 included after tax gains of $12.3 million and $0.7 million from
the sale of a portion of stock received from the exercise of stock warrants by
the business credit operation. Also included in the first nine months of 2000
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 first nine months and third quarter
of 1999 included after tax gains of $2.6 million and $0.4 million from the sale
of stock received from the exercise of stock warrants. Also included in the
operating results for the nine months ended September 30, 1999 were after tax
gains of $1.7 million from the sale and securitization of inventory floorplan,
equipment lease finance, and retail revolving credit card receivables. Excluding
the above items, commercial lending operating results, for the first nine months
and third quarter of 2000 increased $16.9 million (20%) and $3.8 million (11%)
over the comparable prior year periods. Higher average net receivables
outstanding contributed to the growth in operating income.
Revenues in the first nine months and third quarter of 2000 increased
$212.5 million (30%) and $64.5 million (26%) over the corresponding 1999 periods
principally as a result of growth in average net receivables outstanding.
Revenues in the first nine months and third quarter of 2000 included $19.6
million and $1.2 million of gains on the sale of stock. Revenues in the first
nine months and third quarter of 1999 included $4 million and $0.6 million of
gains on the sale of stock.
<PAGE>
Page 8
Interest expense increased $138.6 million (60%) and $48.9 million (62%)
in the first nine months and third 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 nine months and third quarter of
2000 increased $16.8 million (6%) and $5.3 million (6%) over the comparable
periods in 1999 mainly as a result of higher business volume. The provision for
losses on receivables for the first nine months and third quarter of 2000
increased $23 million (38%) and $4.9 million (24%) 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 (adjusted to
include receivables in assets held for sale), net of unearned finance charges,
were .52% for the first nine months and .49% for the third quarter of 2000
compared to .80% and .74% for the comparable periods of 1999.
Net commercial finance receivables outstanding at September 30, 2000,
decreased $506.4 million (6%) from December 31, 1999. During the second and
third quarters of 2000, the commercial lending operation reclassified its
consumer mortgage, retail finance, insurance premium finance, and small business
administration loan net receivables to assets held for sale. In the third
quarter of 2000, the Company sold consumer mortgage receivables at their
carrying value of $536.1 million. Excluding receivables at December 31, 1999
which were subsequently reclassified to assets held for sale, net commercial
finance receivables at September 30, 2000 increased by $997.7 million (14%) from
December 31, 1999. Management has established an allowance for losses equal to
1.92% of net commercial finance receivables outstanding as of September 30, 2000
compared to 1.66% at December 31, 1999. Effective in the second quarter of 2000,
the policies used for the determination of delinquent and nonearning receivables
for the International Structured Finance receivables were 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 September 30, 2000, delinquent receivables were $103.8 million (1.15% 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 $146.3 million (1.62% of
receivables outstanding) at September 30, 2000 compared to $136.3 million (1.44%
of receivables outstanding) at December 31, 1999. Delinquency and nonearning
receivables at September 30, 2000 exclude amounts related to the consumer
mortgage, retail finance, insurance premium finance and small business
administration receivables due to the reclassification to assets held for sale.
Assets held for sale as of September 30, 2000 totaled $1,378.2 million
and consisted of retail finance receivables of $974.9 million, insurance premium
finance receivables of $320.8 million, small business administration loan
receivables of $117.6 million, consumer mortgage receivables of $72.7 million,
other repossessed assets of $12.8 million and a valuation allowance of $120.6
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
September 30, 2000, $72.5 million (4.88% of receivables held for sale) were more
than 60 days past due and $54.8 million (3.69% of receivables held for sale)
were classified as nonearning.
<PAGE>
Page 9
Leasing
Leasing comprises the Company's marine containers and European trailer
operations. Leasing signed agreements in July of 2000 to sell its tank container
and domestic product businesses. The sale of the tank container business closed
on September 28, 2000 resulting in a gain of $3.2 million after tax. The sale of
the domestic products business closed on October 24, 2000 and will result in an
after tax gain of approximately $35 million in the fourth quarter of 2000.
Leasing had net income for the first nine months of 2000 of $7.8 million and had
a net loss in the third quarter of $2.2 million compared to net income of $19.2
million and $4.1 million for the comparable prior year periods.
Operating results, before the amortization of goodwill, for the first
nine months of 2000 were income of $9.4 million and a third quarter loss of $1.6
million compared to income of $20.7 million and $4.5 million for the comparable
prior year periods. Operating results for the first nine months of 2000 included
$9.5 million in net tax benefits associated with a structured equipment
financing of certain European trailer equipment, a $6.5 million after tax
valuation provision on certain European trailer equipment recorded in the third
quarter, and a $3.2 million after tax gain on the sale of the tank container
business recorded in the third quarter. Results for the first nine months of
1999 included a $4.9 million after tax benefit from the termination of a
leverage lease. Excluding the above items, operating results, before the
amortization of goodwill, for the first nine months and third quarter of 2000
were income of $3.2 million and $1.7 million compared to income of $15.8 million
and $4.5 million for the comparable prior year periods. For both the first nine
months and third quarter of 2000, earnings were negatively impacted year to year
by a continued decline in marine (special, dry and refrigerated) and tank
containers 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 nine months and third quarter of 2000 decreased
$25.7 million (5%) and $14.1 million (8%) versus the comparable prior year
periods. Included in the revenues for the first nine months and third quarter of
2000 are a $5 million gain on the sale of the tank container business and a $10
million valuation provision on certain European trailer equipment. Excluding
these items, revenues for the first nine months and third quarter of 2000
decreased $20.7 million (4%) and $9.1 million (5%) versus comparable prior year
periods. For both the first nine months and third 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.
Expenses for the first nine months of 2000 increased $8.6 million (2%)
over the comparable prior year period primarily as a result of 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.
Expenses for the third quarter of 2000 decreased $4 million (2%) over the
comparable prior year period primarily as a result of Leasing's sale of the tank
container business.
The utilization of marine containers was 77% and 79% for the first nine
months and third quarter of 2000 compared to 74% and 75% for the comparable
prior year periods. European trailer utilization was 82% and 83% for the first
nine months and third quarter 2000 compared to 80% for the comparable prior year
periods. Domestic products utilization was 92% and 91% for the first nine months
and third quarter of 2000 compared to 94% and 93% for the comparable prior year
periods.
Assets held for sale at September 30, 2000 totaled $630.6 million, of
which $606.9 million related to equipment held for lease, accounts receivable
and other assets of the domestic products business. Leasing's domestic product
business was sold on October 24, 2000. Assets held for sale at December 31, 1999
totaled $17.3 million.
<PAGE>
Page 10
Other
The decline in the results in other operations for the first nine
months of 2000 compared to the first nine months 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
In accordance with Financial Accounting Standard No. 130, Reporting
Comprehensive Income, comprehensive income (loss) for the nine months and third
quarter ended September 30, 2000 and 1999 comprised (amounts in millions):
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
2000 1999 2000 1999
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ (54.1) $ 102.8 $ (69.4) $ 33.7
Other comprehensive income, net of tax:
Unrealized gains arising during
the period from
investments marked to fair value 34.2 2.6 19.3 0.4
Reclassification adjustment for realized (gains)
losses included in net income (loss) (12.3) (2.6) (0.7) (0.4)
Foreign currency translation adjustments (28.9) (5.2) (10.3) 8.5
-------- --------- --------- --------
Comprehensive income (loss) $ (61.1) $ 97.6 $ (61.1) $ 42.2
======== ========= ========= ========
</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 $2.2 billion
at September 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 September 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 September 30, 2000 and December 31,
1999 was a net obligation of $0.6 million and $20.6 million comprising
agreements with aggregate gross obligations of $10.1 million and $28.2 million
and agreements with aggregate gross benefits of $9.5 million and $7.6 million.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS No. 133"). FAS No. 133 establishes
accounting and reporting standards requiring all derivative instruments
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. FAS No. 133 requires that changes in a derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset the related results of the hedged item in the income statement.
<PAGE>
Page 11
The Company will adopt FAS No. 133 on January 1, 2001. There are two
areas where the adoption of FAS No. 133 will impact the Company. First, we have
derivatives, mostly interest rate swaps, which are used in connection with
managing the interest rate risk of our debt portfolio. We believe substantially
all of our debt related derivatives will qualify as hedges. In adopting FAS No.
133, the Company may elect not to designate some or all of its instruments,
which are ineligible for the "short cut method", as hedges in order to avoid the
onerous requirement to continually assess the effectiveness of the hedges. This
would require these instruments to be marked to market through earnings. We do
not expect adoption of FAS No. 133 to have a material impact on earnings or
equity with respect to these instruments. Second, under FAS No. 133 stock
warrants that we receive in connection with our technology finance business may
be considered derivatives under FAS No. 133, which would require that such
instruments be recorded on the balance sheet and marked to market through the
income statement.
A detailed analysis of each stock warrant is being performed to
determine if the numerous requirements of FAS No. 133 have been met to qualify
the instrument as a derivative. We are also pursuing strategies, including
exercise of the warrant before the initial public offering of the issuer of the
warrant, which would minimize the volatility that FAS No. 133 may have on our
earnings. Based on our analysis to date of the Company's warrant and derivatives
portfolios, had we adopted FAS No. 133 at September 30, 2000, the positive
cumulative effect of this change in accounting on earnings would have been in
the range of $10 million to $25 million after tax. However, the final impact of
adoption of FAS No. 133 with respect to these instruments will be dependent upon
conditions in the equity and debt markets at the time of adoption, as well as
the outcome with respect to the aforementioned strategies we are pursuing to
minimize volatility.
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)
Rosario A. Perrelli
Executive Vice President and Chief Financial Officer
(Chief Accounting Officer)
Date: November 9, 2000
