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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, 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 April 27, 2000: 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, 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 its strategic
review of the Company's businesses acquired in connection with the acquisition
of Transamerica Corporation in July 1999 and that it has decided to make
strategic dispositions of these businesses. The strategic dispositions under
consideration include possible asset or business unit sales, in whole or in
part, as well as joint ventures. AEGON had previously classified the Company's
businesses as non-core. Investment bankers have been retained to assist AEGON in
the process.
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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TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
-----------------
<TABLE>
CONSOLIDATED BALANCE SHEET
(Amounts in millions except for share data)
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 69.3 $ 23.8
Finance receivables 10,350.8 9,434.6
Less unearned fees ($729.1 in 2000 and
$726 in 1999) and allowance for losses 886.2 870.5
------------ ------------
9,464.6 8,564.1
Property and equipment, less accumulated depreciation
of $1,523.2 in 2000 and $1,510 in 1999:
Land, buildings and equipment 55.8 59.3
Equipment held for lease 2,976.0 3,020.5
Investments (cost of $65.6 in 2000 and
$56.7 in 1999) 109.7 88.7
Goodwill, less accumulated amortization of
$195.6 in 2000 and $191.3 in 1999 404.6 409.3
Assets held for sale 23.4 24.5
Other assets 589.2 732.6
------------ ------------
$ 13,692.6 $ 12,922.8
============ ============
Liabilities and Stockholder's Equity:
Debt:
Unsubordinated $ 9,965.4 $ 9,295.2
Subordinated 211.0 222.0
------------ ------------
Total Debt 10,176.4 9,517.2
Accounts payable and other liabilities 1,058.9 1,096.4
Income taxes payable 515.5 502.9
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 1,878.3 1,742.9
Retained earnings 37.4 41.3
Components of other cumulative
comprehensive income:
Net unrealized gain from investments marked to fair value 28.6 20.8
Foreign currency translation adjustments (17.1) (13.3)
------------ ------------
Total Stockholder's Equity 1,941.8 1,806.3
------------ ------------
$ 13,692.6 $ 12,922.8
============ ============
</TABLE>
<PAGE>
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TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
----------------------
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
(Dollar amounts in millions)
<CAPTION>
Three months ended
March 31,
2000 1999
---------- ----------
<S> <C> <C>
REVENUES
Finance charges and other fees $ 256.4 $ 196.1
Leasing revenues 170.9 172.0
Other 37.2 46.5
---------- ----------
Total revenues 464.5 414.6
EXPENSES
Interest and debt expense 143.7 109.5
Depreciation on equipment held for lease 75.9 72.5
Salaries and other operating expenses 173.2 169.2
Provision for losses on receivables 25.3 20.9
---------- ----------
Total expenses 418.1 372.1
Income before income taxes 46.4 42.5
Income taxes 9.3 18.1
---------- ----------
Net income $ 37.1 $ 24.4
========== ==========
Ratio of earnings to fixed charges 1.31 1.37
==== ====
</TABLE>
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TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
-----------------
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in millions)
<CAPTION>
Three months ended
March 31,
2000 1999
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 37.1 $ 24.4
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 84.8 80.4
Provision for losses on receivables 25.3 20.9
Change in accounts payable and other liabilities (10.8) (79.1)
Change in income taxes payable 13.8 18.0
Other 5.1 (0.9)
----------- ----------
Net cash provided by operating activities 155.3 63.7
INVESTING ACTIVITIES
Finance receivables originated (7,182.0) (5,716.8)
Finance receivables collected and sold 6,246.8 5,361.9
Purchase of property and equipment (72.9) (188.1)
Sales of property and equipment 18.7 11.2
Other 129.1 91.1
----------- ----------
Net cash used by investing activities (860.3) (440.7)
FINANCING ACTIVITIES
Proceeds from debt financing 2,690.9 2,250.2
Payment of debt (2,034.7) (1,916.2)
Capital contribution 135.3 42.5
Cash dividend paid (41.0)
----------- ----------
Net cash provided by financing activities 750.5 376.5
----------- ----------
Increase (decrease) in cash and cash equivalents 45.5 (0.5)
Cash and cash equivalents at beginning of year 23.8 51.2
----------- ----------
Cash and cash equivalents at end of period $ 69.3 $ 50.7
=========== ==========
</TABLE>
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TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
-----------------
<TABLE>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(Amounts in millions)
<CAPTION>
Three months ended
March 31,
2000 1999
--------- --------
<S> <C> <C>
Balance at beginning of year $ 41.3 $ 48.0
Net income 37.1 24.4
Dividend declared and paid (41.0)
--------- --------
Balance at end of period $ 37.4 $ 72.4
========= ========
</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 its strategic
review of the Company's businesses acquired in connection with the purchase of
Transamerica Corporation in July 1999 and that it has decided to make strategic
dispositions of these businesses. The strategic dispositions under consideration
include possible asset or business unit sales, in whole or in part, as well as
joint ventures. AEGON had previously classified the Company's businesses as
non-core. Investment bankers have been retained to assist AEGON in the process.
The following table sets forth revenues and income by line of business:
<TABLE>
REVENUES AND INCOME BY LINE OF BUSINESS
(Amounts in millions)
<CAPTION>
Three months ended March 31,
Revenues Income
2000 1999 2000 1999
---------- -------- --------- --------
<S> <C> <C> <C> <C>
Commercial lending * $ 292.1 $ 225.4 $ 34.1 $ 21.9
Leasing * 172.4 184.0 9.6 9.7
Other 5.2 (2.3) (2.5)
Amortization of goodwill (4.3) (4.7)
---------- -------- ------- --------
$ 464.5 $ 414.6 $ 37.1 $ 24.4
========== ======== ======= ========
<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>
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Commercial Lending
The commercial lending business makes commercial loans through three
operations: distribution finance, business credit and equipment financial
services; commercial lending also makes consumer loans to facilitate sales by
manufacturers and dealers of consumer durable goods. Commercial Lending net
income for the first quarter of 2000 was $30.4 million compared to $17.7 million
for the first quarter of 1999. Income, before the amortization of goodwill, was
$34.1 million in the first quarter of 2000. This represented a $12.2 million
(56%) increase from the first quarter of 1999 income of $21.9 million. Operating
results for 2000 included after tax gains of $5.8 million from the sale of a
portion of stock received from the exercise of stock warrants by the business
credit operation. Operating results for 1999 included after tax gains of
$500,000 on the sale and securitization of inventory floorplan and equipment
lease finance receivables. Excluding the above items, commercial lending income
before the amortization of goodwill increased $6.9 million (32%) over the first
quarter of 1999. Higher average net receivables outstanding contributed to the
growth in operating income.
Revenues in the first quarter of 2000 increased $66.7 million (30%)
over the first quarter of 1999 principally as a result of growth in average net
receivables outstanding. Revenues in the first quarter of 2000 included $9.2
million of gains on the sale of stock.
Interest expense increased $39.1 million (53%) in the first quarter of
2000 as compared to the comparable 1999 period due to a higher average interest
rate on borrowings and due to higher average outstanding debt as a result of
growth in average net receivables outstanding. Operating expenses rose $4.5
million (5%) mainly as a result of costs related to higher business volume and
servicing of receivables. The provision for losses on receivables increased $4.4
million (21%) due to growth in receivables. Credit losses, net of recoveries, on
an annualized basis as a percentage of average net receivables outstanding were
0.55% for the first quarter of 2000 compared to 0.90% for the first quarter of
1999.
Net receivables outstanding at March 31, 2000, increased $913.1 million
(10%) from December 31, 1999 due to continued growth in each business unit.
Management has established an allowance for losses equal to 1.63% of net
receivables outstanding as of March 31, 2000 compared to 1.66% at December 31,
1999.
Delinquent receivables are defined as the instalment balance for
inventory finance, business credit asset based lending and international
equipment finance receivables more than 60 days past due, and the receivables
balance for all other receivables over 60 days past due. At March 31, 2000,
delinquent receivables were $118.4 million (1.14% of receivables outstanding)
compared to $105.9 million (1.12% 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 $168.7 million (1.63% of
receivables outstanding) at March 31, 2000 compared to $136.7 million (1.45% of
receivables outstanding) at December 31, 1999.
<PAGE>
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Leasing
Leasing comprises the Company's marine containers, domestic products,
tank containers, and European trailer operations. Net income for the first
quarter of 2000 was $9.1 million compared to $9.2 million in the first quarter
of 1999. Income, before the amortization of goodwill, was $9.6 million in the
first quarter of 2000 compared to $9.7 million in the first quarter of 1999.
Operating results for 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 benefit from the
termination of a leverage lease. Excluding the above items, operating income,
before goodwill amortization, was $100,000 in the first quarter of 2000 versus
$4.8 million in the first quarter of 1999. Earnings were negatively impacted
year to year due to a continued decline in marine (special, dry and
refrigerated) and tank container per-diem rates. Lower earnings were also
experienced in special containers due to fewer on-hire units and in rail
trailers due to lower rail units on-hire and total fleet size.
Revenues for the first quarter of 2000 decreased $11.6 million (6%)
versus the first quarter of 1999. 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. Partially offsetting these were higher revenues from a
larger chassis fleet and more on-hire units. Expenses for 2000 increased $3.7
million (2%) from 1999 as a result of more 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.
The utilization of marine containers was 76% for the first quarter of
2000 compared to 75% in the first quarter of 1999. Domestic products utilization
was 93% for the first quarter of 2000 compared to 91% in the first quarter of
1999. Tank container utilization was 81% for the first quarter of 2000 compared
to 77% in the first quarter of 1999. European trailer utilization was 80% for
both the first quarter of 2000 and the first quarter of 1999.
Comprehensive Income
In accordance with Financial Accounting Standard No. 130, Reporting
Comprehensive Income, comprehensive income for the three months ended March 31,
2000 and 1999 comprised (amounts in millions):
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
-------- ---------
<S> <C> <C>
Net income $ 37.1 $ 24.4
Other comprehensive income, net of tax:
Change in net unrealized gains from
investments marked to fair value 7.8
Foreign currency translation adjustments (3.8) (17.4)
-------- ---------
Comprehensive income $ 41.1 $ 7.0
======== =========
</TABLE>
<PAGE>
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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 $2.7 billion
at March 31, 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 March 31, 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 March 31, 2000 and December 31, 1999 was a net
obligation of $32.5 million and $20.6 million comprising agreements with
aggregate gross obligations of $43 million and $28.2 million and agreements with
aggregate gross benefits of $10.5 million and $7.6 million.
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)
George B. Sundby
Senior Vice President and Chief Financial Officer
(Chief Accounting Officer)
Date: April 28, 2000
EXHIBIT 12
<TABLE>
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Three months ended March 31,
2000 1999
---------- ---------
(Dollar amounts in millions)
<S> <C> <C>
Fixed charges:
Interest and debt expense $ 143.7 $ 109.5
One-third of rental expense 5.6 5.6
---------- ---------
Total $ 149.3 $ 115.1
========== =========
Earnings:
Net income $ 37.1 $ 24.4
Provision for income taxes 9.3 18.1
Fixed charges 149.3 115.1
---------- ---------
Total $ 195.7 $ 157.6
========== =========
Ratio of earnings to fixed charges 1.31 1.37
==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 69
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,032
<DEPRECIATION> 1,523
<TOTAL-ASSETS> 13,693
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 1,927
<TOTAL-LIABILITY-AND-EQUITY> 13,693
<SALES> 0
<TOTAL-REVENUES> 465
<CGS> 0
<TOTAL-COSTS> 76
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 46
<INCOME-TAX> 9
<INCOME-CONTINUING> 37
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<EPS-BASIC> 0
<CHANGES> 0
<NET-INCOME> 37
<EPS-DILUTED> 0
</TABLE>
