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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2000 Commission file number 1-6798
TRANSAMERICA FINANCE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-1077235
- ------------------------------------ ---------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
9399 West Higgins Road, Rosemont, Illinois 60018
- ------------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 685-1100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
8 1/2% Notes Maturing at New York Stock Exchange
Holder's Option Annually
on July 1 and due July 1, 2001
7.10% Senior Quarterly Interest New York Stock Exchange
Bonds due 2028
Securities registered pursuant to section 12(g) of the Act: None
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.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
All of the outstanding shares of the registrant's capital stock are owned by
Transamerica Corporation.
Number of shares of common stock, $10 par value, outstanding as of the
close of business on March 7, 2001: 1,464,285.
The registrant meets the conditions set forth in General Instruction I(1)(a)
and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format.
TABLE OF CONTENTS
Page
Part I:
Item 1. Business.........................................................1
Item 2. Properties.......................................................8
Item 3. Legal Proceedings................................................8
Item 4. Submission of Matters to a Vote of Security Holder...............8
Part II:
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters...................................8
Item 6. Selected Financial Data..........................................8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..........................8
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......8
Item 8. Financial Statements and Supplementary Data......................8
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...........................................36
Part III:
Item 10. Directors and Executive Officers of the Registrant..............36
Item 11. Executive Compensation..........................................36
Item 12. Security Ownership of Certain Beneficial Owners and Management..36
Item 13. Certain Relationships and Related Transactions..................36
Part IV:
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K..........................................37
Page 1
PART I
ITEM 1. BUSINESS
The Company
Transamerica Finance Corporation is a wholly owned subsidiary of
Transamerica Corporation ("Transamerica"). Transamerica is a financial services
organization that conducts business primarily through its subsidiaries in life
insurance, commercial lending, intermodal leasing and real estate services.
Transamerica Finance Corporation includes Transamerica's commercial lending,
intermodal leasing and real estate information services operations. At December
31, 2000, Transamerica contributed its investment in real estate information
services to Transamerica Finance Corporation. The contribution was accounted for
as a pooling of interests. As a result, all prior period financial statements
and other financial disclosures have been restated to include the accounts and
results of operations of real estate information services. Unless the context
indicates otherwise, the terms "Company" and "Registrant" as used herein refer
to Transamerica Finance Corporation and its subsidiaries.
On July 21, 1999, Transamerica, which owns all of the Company's outstanding
stock, completed its merger with a subsidiary of AEGON N. V. ("AEGON"), a
Netherlands based international insurance company. As a result, Transamerica is
now a direct 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 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 certain of the Company's
businesses less attractive and that it intended to continue operating these
units.
In 2000, the Company determined that certain of its businesses did not fit
its long-term strategy. As a result of this determination, the Company
reclassified certain assets to assets held for sale. The Company also identified
certain other assets as liquidating and retained those assets in finance
receivables. The assets reclassified to assets held for sale included
approximately $2.0 billion of net finance receivables from the insurance premium
finance, retail finance, consumer mortgage, and small business administration
loan businesses of the commercial lending operation and approximately $850.0
million of tank container and domestic products equipment from the intermodal
leasing operation. Certain of these assets held for sale were subsequently sold
for net proceeds of $1.7 billion. The net proceeds were used to pay down related
debt and to return capital to Transamerica. At December 31, 2000, approximately
$1.2 billion of the Company's net finance receivables and equipment held for
lease, net of a valuation allowance of $125.1 million, were classified in assets
held for sale and $640.7 million of the Company's finance receivables were
identified as liquidating. The ultimate disposition of both the assets held for
sale and the liquidating finance receivables will be based on maximizing value
for AEGON.
The Company provides funding for its subsidiaries' commercial lending,
intermodal leasing and real estate information services operations. Capital is
allocated among the operations based on expected returns, the potential for
creating shareholder value and the capital needs of the operations. The
Company's principal assets are finance receivables (net of unearned finance
charges and allowances) and equipment held for lease, which totaled a combined
$10.3 billion at December 31, 2000 and $11.6 billion at December 31, 1999. The
Company's total notes and loans payable were $9.4 billion at December 31, 2000
and $9.5 billion at December 31, 1999. Variable rate term debt was $2.8 billion
at December 31, 2000 compared to $3.9 billion at December 31, 1999. The ratio of
debt to tangible equity was 6.5:1 at December 31, 2000 and 6.3:1 at December 31,
1999. Tangible equity is defined as total equity less goodwill plus minority
interest.
Page 2
Effective July 24, 2000, AEGON agreed to provide the Company's term debt
requirements. Prior to this date, the Company offered publicly, from time to
time, senior and subordinated debt securities. The Company issued public debt
totaling $0.9 billion in 2000, $3.1 billion in 1999 and $1.9 billion in 1998.
For a further discussion regarding borrowing activities and related use of
derivatives, see Note D of Notes to Consolidated Financial Statements included
in Item 8.
Liquidity is a characteristic of the Company's operations since a
significant portion of its assets consist of short-term finance receivables.
Principal cash collections of finance receivables totaled $27.6 billion in 2000,
$25.5 billion in 1999 and $21.2 billion in 1998.
Business Segment Information
See Note L of Notes to Consolidated Financial Statements included in Item 8
for business segment information.
The Company's business activities are more fully described below.
Commercial Lending
The commercial lending operation makes commercial loans through three
businesses: distribution finance, business credit and equipment financial
services. It has branch lending offices in the United States, Mexico, Canada,
Europe, and Asia. Effective January 1, 2000, the intermodal leasing operation's
international structured finance business is included in the commercial lending
operation's equipment financial services business. Prior period amounts have
been restated to reflect this inclusion. The activities of the commercial
lending operation are discussed below.
The product offerings of the distribution finance business include inventory
floorplan financing, accounts receivable servicing and financing, credit
insurance brokerage, international financing and factoring of receivables. After
an initial review of the borrower's credit-worthiness, the ongoing management of
credit risk includes various monitoring techniques, such as periodic physical
inventory checks, monitoring of the borrower's sales and quality of collateral
and reviewing customer compliance with financial covenants. In inventory
financing, repurchase agreements are generally maintained with manufacturers.
These agreements provide a degree of security in the event of a repossession.
Business credit provides asset-based and structured finance loans to
middle-market customers, as well as revolving and term loans to development
stage technology companies. Asset-based and structured lending activities
consist of secured revolving and term loans to manufacturers, retailers, and
selected service businesses. These loans are collateralized by tangible assets
and enterprise values. Retained credit lines typically range from $5 million to
$50 million with contract terms ranging from three to five years. Loans are
limited to specific advance rates against the borrower's eligible collateral.
Credit risk on existing loans is managed by monitoring the quality of the
collateral, the borrower's financial performance, and compliance with financial
covenants. The technology finance unit provides senior term, revolving and
bridge loans, and equipment loans and leases to growing companies in the life
sciences and specialized electronics industries to finance research and
development, manufacturing and other business activities. All of these loans are
secured and are underwritten based on the strength and viability of the
customer's technology, which is evaluated with the help of industry experts and
other advisors retained by the unit. Stock warrants are received in many of
these transactions. Business credit also provides bridge loans to fund the
acquisition or refinancing of properties in transition through its commercial
real estate division.
Page 3
Equipment financial services provides secured debt and lease financing to
middle-market customers globally and to the domestic public sector, secured by
essential use or revenue producing equipment. The industries served include, but
are not limited to, manufacturing, container and diversified shipping, aviation,
motor freight, public finance, construction, mining and railroad. Transactions
are structured with average customer outstandings typically ranging from $1
million to $7 million and with terms ranging from three years to fifteen years.
The underwriting philosophy is based on evaluating the borrower's cash flow and
liquidity along with the value and the importance of the underlying collateral.
Credit risk is managed by monitoring the borrower's payment and financial
performance.
In 2000, the Company determined that the insurance premium finance, retail
finance, consumer mortgage, and small business administration loan businesses
did not fit its long-term strategy and reclassified the net finance receivables
of these businesses to assets held for sale. Additionally, the Company decided
to exit certain other businesses of its commercial lending operation that also
did not fit its long-term business strategy and identified the finance
receivables of these businesses as liquidating. At December 31, 2000, $1,244.0
million of net finance receivables were in assets held for sale and $640.7
million of finance receivables were identified as liquidating. The ultimate
disposition of both the assets held for sale and the liquidating finance
receivables will be based on maximizing value for AEGON.
The commercial lending operation is exposed to interest rate risk to the
extent that its interest-earning loans do not re-price as frequently, on the
same basis or to the same extent as its interest-bearing liabilities. At
December 31, 2000, $5.6 billion and $2.7 billion of its loans were variable rate
and fixed rate, respectively, compared with $5.5 billion and $3.1 billion,
respectively, at December 31, 1999. Variable rate loans are tied to variable
rate indices such as the prime rate, LIBOR or commercial paper. The commercial
lending operation pursues funding strategies that attempt to reduce the
sensitivity of its gross interest margin to interest rate fluctuations. These
strategies take into consideration both the variability of interest rates and
the maturity and re-pricing profile of its interest-earning loans and
interest-bearing liabilities. Variable rate loans are funded with short-term
borrowings, principally commercial paper and long-term fixed rate borrowings
that have been swapped to variable rates. Fixed rate loans are funded with
long-term fixed rate borrowings, with maturities of approximately two to seven
years.
The commercial lending operation did not increase the pool levels for
securitized receivables in 2000 and, in the second quarter of 2000, terminated
its $150.0 million retail revolving credit card securitization. In 1999, the
commercial lending operation increased the securitized pool levels by $300.0
million of distribution finance floorplan and $150.0 million of equipment
financial services loan and lease finance receivables and securitized $150.0
million of retail revolving credit card receivables. In 1998, the commercial
lending operation increased the securitized pool levels by $600.0 million of
distribution finance floorplan and $200.0 million of equipment financial
services loan and lease finance receivables and separately securitized $93.9
million of consumer mortgage loans.
The commercial lending industry is highly competitive. In addition to
competition from other finance companies and commercial banks, there is
competition from captive finance subsidiaries of manufacturing companies. The
commercial lending operation competes by offering a variety of financing
products and superior customer service, including prompt credit review and
competitive pricing.
Page 4
The following table sets forth certain statistical information relating to
the commercial lending operation's finance receivables for the years indicated.
Prior period amounts have been restated for the inclusion of the international
structured finance business in equipment financial services. For all periods,
the presentation separates out the finance receivables of the businesses that do
not fit the Company's long-term strategy.
Years Ended December 31,
-----------------------------------------------
2000 1999 1998
------------- ------------- -------------
(Dollar amounts in millions)
Volume of finance receivables originated:
Distribution finance........................................ $ 21,348.1 $ 19,272.5 $ 15,632.0
Business credit............................................. 3,555.8 3,621.3 3,368.3
Equipment financial services................................ 1,720.1 1,717.2 1,032.3
------------- ------------- -------------
Subtotal.................................................. 26,624.0 24,611.0 20,032.6
Other (1) .................................................. 3,516.0 3,800.3 3,681.8
------------- ------------- -------------
$ 30,140.0 $ 28,411.3 $ 23,714.4
============= ============= =============
Finance receivables outstanding at end of year:
Distribution finance........................................ $ 2,913.3 $ 2,568.0 $ 2,162.3
Business credit............................................. 2,268.9 1,927.0 1,381.2
Equipment financial services................................ 3,478.7 2,738.0 1,884.8
------------- ------------- -------------
Subtotal.................................................. 8,660.9 7,233.0 5,428.3
Other (2)(3)................................................ 640.7 2,201.6 1,515.4
------------- ------------- -------------
9,301.6 9,434.6 6,943.7
Less unearned finance charges................................. 846.5 726.0 521.2
------------- ------------- -------------
Net finance receivables--owned.............................. 8,455.1 8,708.6 6,422.5
Net finance receivables--securitized and serviced:
Distribution finance...................................... 2,416.3 2,443.4 2,113.2
Equipment financial services.............................. 350.0 350.0 200.0
------------- ------------- -------------
Subtotal................................................ 2,766.3 2,793.4 2,313.2
Other (2)(4).............................................. - 660.8 580.3
------------- ------------- -------------
2,766.3 3,454.2 2,893.5
------------- ------------- -------------
Net finance receivables--owned and securitized ............ $ 11,221.4 $ 12,162.8 $ 9,316.0
============= ============= =============
Allowance for losses--owned and securitized (5)................ $ 186.6 $ 179.0 $ 152.1
Ratio to outstanding less unearned finance charges:
Owned....................................................... 1.88% 1.66% 1.93%
Owned and securitized....................................... 1.66% 1.47% 1.63%
Provision for credit losses charged to income (6)............. $ 137.7 $ 87.4 $ 53.0
Credit losses (net of recoveries) (7)......................... $ 90.4 $ 55.4 $ 33.1
Ratio to average net finance receivables outstanding: (8)
Owned....................................................... 0.95% 0.77% 0.67%
Owned and securitized....................................... 0.70% 0.53% 0.44%
- ------------------
(1) Includes volume from businesses sold or held for sale at December 31, 2000
through the date such finance receivables were reclassified to assets held
for sale.
(2) For 2000, finance receivables classified in assets held for sale are
excluded from the presentation and finance receivables identified as
liquidating are shown under "Other". For 1999 and 1998, "Other" includes
finance receivables of businesses that, during 2000, have been sold,
liquidated, classified as assets held for sale, or identified as
liquidating.
(Footnotes continued on following page)
Page 5
(Footnotes continued from preceding page)
(3) At December 31, 1999 and 1998, finance receivables from businesses that in
2000 were identified as liquidating, were $671.8 and $472.2, respectively.
(4) Includes, for 1999 and 1998, securitized insurance premium net finance
receivables of $359.4 and $359.4, consumer mortgage loans of $122.5 and
$184.2, and small business administration loans of $28.9 and $36.7,
respectively. 1999 also includes $150.0 of retail finance receivables.
Securitized net finance receivables for 2000 are excluded due to the
reclassification of these receivables to assets held for sale.
(5) Includes allowance for losses on the securitized and serviced portfolio of
$27.7 in 2000, $34.5 in 1999 and $28.0 in 1998, which is reported in
accounts payable and other liabilities.
(6) The increase in 2000 is primarily attributable to increases in credit
losses. The increase in 1999 was primarily attributable to receivable
growth.
(7) Includes, for 2000, $9.6 of credit losses on finance receivables after the
date that they were reclassified to assets held for sale.
(8) Average net finance receivables outstanding includes net finance
receivables of businesses classified in assets held for sale or sold in
2000.
Intermodal Leasing
The intermodal leasing operation provides service, rentals and term
operating leases through a worldwide network of offices, third party depots, and
other facilities. The operation also utilizes modern technology, including its
TradexTM online internet capability, to enable customers around the world to
book on-hire and off-hire transactions. The operation's customers include
steamship lines, distribution companies, manufacturers, and transport companies.
Its main competitors are other transportation equipment leasing companies and
financial institutions.
The intermodal leasing operation offers a wide variety of equipment used in
international and domestic commerce around the world. Its fleet consists of over
721,000 marine containers and nearly 22,000 European trailers. Marine containers
are standard twenty and forty foot containers and come in specialized types,
such as refrigerated, open top and flat rack equipment types, that allow goods
to travel by road, rail or ship. European trailers are curtainsider,
refrigerated, and box van over-the-road trailers.
In 2000, the intermodal leasing operation sold its tank container and
domestic products businesses.
Real Estate Information Services
Real estate information services provides property tax monitoring, flood
certification, and other real estate information services to its customers. The
largest component of this operation is the tax monitoring business, which
provides tax monitoring services to mortgage lenders nationwide.
Page 6
The operation is one of the largest providers of tax monitoring services in
the United States. On behalf of mortgage lenders, the tax monitoring service
monitors and oversees the payment of property taxes to the taxing authorities on
real estate securing their loans and provides payment confirmations to the
lenders. The fee charged to service each mortgage loan varies by the geographic
dispersion of the customer portfolio and the type of service contracted by the
customer. The tax service industry consists of nationwide, regional, and local
competitors. The operation provided tax monitoring services on 17.8 million
contracts at December 31, 2000, compared with 18.6 million contracts at December
31, 1999 and 17.9 million contracts at December 31, 1998. The operation's
primary source of tax service business is from large multi-state mortgage
lenders.
The real estate information services operation also includes flood
certification services. This service furnishes, to mortgage lenders, flood zone
determination reports that provide information as to whether or not property
securing a loan is in a governmentally delineated special flood hazard area.
Mortgage lenders are generally required to obtain a determination of a
property's current flood zone status at the time each loan is originated and to
obtain updates during the life of the loan.
Regulation
The Company's operations are subject to a variety of state, federal and
foreign laws and regulations.
Employees
The Company employed approximately 5,400 persons at December 31, 2000.
Return on Assets and Equity
Certain information regarding the Company's consolidated return on assets
and equity, and certain other ratios, are set forth below:
Years Ended December 31,
------------------------------------
2000 1999 1998
--------- --------- --------
Return on assets (1)................ 0.2% 1.6% 2.0%
Return on equity (2)................ 1.1% 11.2% 13.7%
Return on tangible equity (3)....... 2.6% 16.3% 21.0%
Dividend payout ratio (4)........... 288.4% 107.4% 71.6%
Equity to assets ratio (5).......... 13.4% 14.0% 14.4%
- ------------------
(1) Net income divided by total average assets (2 point method).
(2) Net income divided by total average equity (2 point method).
(3) Income before the amortization of goodwill divided by tangible average
equity (2 point method) (tangible equity is defined as total equity less
goodwill).
(4) Cash dividends paid divided by net income.
(5) Total average equity divided by total average assets (2 point method).
Page 7
Consolidated Ratios of Earnings to Fixed Charges
The following sets forth the consolidated ratios of earnings to fixed
charges:
Years Ended December 31,
---------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
1.08 1.65 1.75 1.61 1.80
The ratios were computed by dividing net income before fixed charges and
income taxes, by fixed charges. Fixed charges consist of interest and debt
expense and one-third of rent expense, which approximates the interest factor.
Net income for 1997 and 1996 excludes income (loss) from the consumer lending
operation of $161.8 million and ($45.2) million, respectively, which was
accounted for as a discontinued operation.
Page 8
ITEM 2. PROPERTIES
The Company owns no real properties materially important to it.
ITEM 3. LEGAL PROCEEDINGS
Various pending or threatened legal proceedings by or against the Company or
one or more of its subsidiaries involve tax matters, alleged breaches of
contract, torts, employment discrimination, violations of antitrust and other
laws and miscellaneous other causes of action arising in the course of their
businesses.
Based upon information presently available, and in light of legal and other
defenses and insurance coverage available to the Company and its subsidiaries,
contingent liabilities arising from threatened and pending litigation, income
taxes and other matters are not expected to have a material effect on the
consolidated financial position or results of operations of the Company and its
subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted in accordance with General Instruction I.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable. All of the outstanding shares of the Registrant's capital
stock are owned by Transamerica, which is a direct subsidiary of AEGON.
ITEM 6. SELECTED FINANCIAL DATA
Omitted in accordance with General Instruction I.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Omitted in accordance with General Instruction I. See "Management's
Narrative Analysis of Results of Operations" following the Notes to Consolidated
Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The response to this item is set forth in "Market Risk" and "Interest Rate
Risk" in "Management's Narrative Analysis of Results of Operations" following
the Notes to Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page 9
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholder and Board of Directors
Transamerica Finance Corporation
We have audited the accompanying consolidated balance sheets of Transamerica
Finance Corporation as of December 31, 2000 and 1999, and the related
consolidated statements of income, cash flows, and stockholder's equity for each
of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Transamerica Finance Corporation at December 31, 2000 and 1999, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Chicago, Illinois
February 9, 2001
Page 10
TRANSAMERICA FINANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in millions)
December 31,
------------------------------
2000 1999
------------ -------------
ASSETS
Cash and cash equivalents................................................. $ 47.6 $ 23.8
Finance receivables 9,301.6 9,434.6
Less unearned finance charges........................................... 846.5 726.0
------------ -------------
Net finance receivables............................................... 8,455.1 8,708.6
Less allowance for losses........................................... 158.9 144.5
------------ -------------
8,296.2 8,564.1
Property and equipment--less accumulated depreciation of $1,205.1
in 2000 and $1,543.3 in 1999:
Land, buildings and equipment........................................... 79.5 114.4
Equipment held for lease................................................ 2,023.1 3,020.5
Investments (cost of $72.3 in 2000 and $59.0 in 1999)..................... 103.2 91.0
Goodwill, less accumulated amortization of $186.5 in 2000 and
$191.3 in 1999.......................................................... 321.9 409.3
Assets held for sale (net of a valuation allowance of $125.1 in 2000 and
$1.7 in 1999)........................................................... 1,151.5 24.5
Advances due from affiliates.............................................. 225.6 159.9
Other assets ............................................................. 639.2 773.1
------------ -------------
$ 12,887.8 $ 13,180.6
============ =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Debt:
Unsubordinated.......................................................... $ 8,984.1 $ 9,295.2
Subordinated............................................................ 62.5 $222.0
Due to AEGON affiliates................................................. 400.0 -
------------ -------------
Total debt............................................................ 9,446.6 9,517.2
Deferred real estate service revenues..................................... 307.6 354.5
Accounts payable and other liabilities.................................... 1,039.6 1,110.4
Income taxes payable, of which $377.2 in 2000 and
$364.4 in 1999 are deferred............................................. 399.6 389.2
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.............................................. 1,679.7 1,749.9
Retained earnings....................................................... 0.4 37.3
Components of accumulated other comprehensive income:
Net unrealized gain from investments marked to fair value............. 20.1 20.8
Foreign currency translation adjustments.............................. (20.4) (13.3)
------------ -------------
Total stockholder's equity.......................................... 1,694.4 1,809.3
------------ -------------
$ 12,887.8 $ 13,180.6
============ =============
See notes to consolidated financial statements
Page 11
TRANSAMERICA FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in millions)
Years Ended December 31,
------------------------------------------
2000 1999 1998
----------- ---------- ----------
REVENUES
Finance charges................................. $ 1,047.4 $ 883.8 $ 709.3
Leasing revenues................................ 631.0 697.2 736.8
Real estate service revenues.................... 240.4 287.2 272.6
Other........................................... 257.7 176.8 107.6
---------- ---------- ----------
Total revenues................................ 2,176.5 2,045.0 1,826.3
EXPENSES
Interest and debt expense....................... 604.0 456.2 382.2
Depreciation on equipment held for lease........ 283.3 298.9 284.9
Salaries and other operating expenses........... 868.1 889.3 800.5
Provision for losses on receivables............. 137.7 87.4 53.0
Provision for expected losses on disposal of
assets of business units...................... 231.6 - -
---------- ---------- ----------
Total expenses................................ 2,124.7 1,731.8 1,520.6
---------- ---------- ----------
Income before income taxes.................. 51.8 313.2 305.7
Income taxes.................................... 32.2 122.0 107.7
---------- ---------- ----------
Net income.................................. $ 19.6 $ 191.2 $ 198.0
=========== ========== ==========
See notes to consolidated financial statements
Page 12
TRANSAMERICA FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in millions)
Years Ended December 31,
---------------------------------------------
2000 1999 1998
--------- --------- ---------
OPERATING ACTIVITIES
Net income.................................................... $ 19.6 $ 191.2 $ 198.0
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization of goodwill................... 328.1 341.3 317.1
Provision for losses on receivables......................... 137.7 87.4 53.0
Provision for expected losses on disposal of assets of
business units............................................ 231.6 - -
Change in accounts payable and other liabilities............ (116.6) 50.9 54.2
Change in income taxes payable.............................. 15.1 96.1 57.0
Other....................................................... 36.1 (49.9) (71.5)
--------- --------- ---------
Net cash provided by operating activities................. 651.6 717.0 607.8
INVESTING ACTIVITIES
Finance receivables originated.............................. (29,505.3) (27,799.4) (23,035.0)
Finance receivables collected and sold...................... 27,571.2 25,463.8 21,245.8
Purchases of property and equipment......................... (309.0) (444.0) (469.1)
Sales of property and equipment............................. 119.7 65.4 121.3
Purchase of finance receivables............................. - - (386.4)
Proceeds from sale of certain assets held for sale.......... 1,732.8 200.0 -
Other....................................................... (30.7) 42.8 48.2
--------- --------- ---------
Net cash used in investing activities..................... (421.3) (2,471.4) (2,475.2)
FINANCING ACTIVITIES
Proceeds from debt financing................................ 5,922.4 7,336.7 4,202.6
Repayments of debt.......................................... (6,402.2) (5,614.4) (2,446.5)
Proceeds from debt financing with AEGON affiliates.......... 400.0 - -
Capital contributions from parent company................... 370.0 210.0 232.1
Cash dividends paid......................................... (56.5) (205.3) (141.7)
Return of capital........................................... (440.2) - -
--------- --------- ---------
Net cash provided by (used in) financing activities....... (206.5) 1,727.0 1,846.5
--------- --------- ---------
Increase (decrease) in cash and cash equivalents............ 23.8 (27.4) (20.9)
Cash and cash equivalents at beginning of year.............. 23.8 51.2 72.1
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 47.6 $ 23.8 $ 51.2
========= ========= =========
See notes to consolidated financial statements
Page 13
TRANSAMERICA FINANCE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollar amounts in millions)
Accumulated Other
Comprehensive Income
---------------------------------
Unrealized Gain Foreign
Additional Retained From Investments Currency
Common Paid-in Earnings Comprehensive Marked to Translation
Stock Capital (Deficit) Income Fair Value Adjustments
--------- ----------- ----------- --------------- ---------------- ---------------
Balance at December 31, $ 14.6 $ 1,307.8 $ (4.9) $ - $ (12.3)
1997........
Comprehensive income
Net income ................... 198.0 $ 198.0
Other comprehensive income,
net of tax:
Foreign currency translation
adjustments.................... 6.7 6.7
---------------
Comprehensive income................ $ 204.7
===============
Capital contribution from parent
company .......................... 232.1
Dividends declared and paid ........ (141.7)
--------- ----------- ----------- ---------------- --------------
Balance at December 31, 1998 ....... 14.6 1,539.9 51.4 - (5.6)
Comprehensive income
Net income ....................... 191.2 $ 191.2
Other comprehensive income,
net of tax:
Unrealized gains from
investments marked to fair
value......................... 20.8 20.8
Foreign currency translation
adjustments .................. (7.7) (7.7)
---------------
Comprehensive income ............... $ 204.3
===============
Capital contribution from parent
company .......................... 210.0
Dividends declared and paid ........ (205.3)
--------- ----------- ----------- ---------------- ---------------
Balance at December 31, 1999 ....... 14.6 1,749.9 37.3 20.8 (13.3)
Comprehensive income
Net income ....................... 19.6 $ 19.6
Other comprehensive income,
net of tax:
Unrealized gains from
investments marked to fair
value......................... 11.6 11.6
Gains reclassified into earnings
from other comprehensive
income ....................... (12.3) (12.3)
Foreign currency translation
adjustments .................. (7.1) (7.1)
---------------
Comprehensive income ............... $ 11.8
===============
Capital contribution from parent
company .......................... 370.0
Dividends declared and paid ........ (56.5)
Return of capital .................. (440.2)
--------- ----------- ----------- ---------------- --------------
Balance at December 31, 2000........ $ 14.6 $ 1,679.7 $ 0.4 $ 20.1 $ (20.4)
========= =========== =========== ================ ==============
See notes to consolidated financial statements
Page 14
TRANSAMERICA FINANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A--Organization
Transamerica Finance Corporation (the "Company"), through its subsidiaries,
is engaged principally in commercial lending, intermodal leasing and real estate
information services operations. The Company is a wholly owned subsidiary of
Transamerica Corporation ("Transamerica"). The United States is the primary
market for the services offered by the commercial lending and real estate
information services operations while the intermodal leasing operation's market
is worldwide.
On July 21, 1999, Transamerica, which owns all of the Company's outstanding
stock, completed its merger with a subsidiary of AEGON N. V., a Netherlands
based international insurance company. As a result, Transamerica is now a direct
subsidiary of AEGON N. V.
Business Contribution: At December 31, 2000, Transamerica contributed its
investment in real estate information services to the Company. The contribution
was accounted for as a pooling of interests. As a result, all prior period
financial statements and other financial disclosures have been restated to
include the accounts and results of operations of real estate information
services. The following summarizes the restatement of the 1999 and 1998
financial statements:
Real Estate
As Previously Information As
1999 Reported Services Restated
- ----------------------- --------------------- ------------------ ---------------
Total revenue........ $ 1,751.4 $ 293.6 $ 2,045.0
Net income........... 143.9 47.3 191.2
1998
- -----------------------
Total revenue........ $ 1,552.9 $ 273.4 $ 1,826.3
Net income........... 140.8 57.2 198.0
Business Realignment: In 2000, the Company determined that certain of its
businesses did not fit its long-term strategy. As a result of this
determination, the Company reclassified certain assets to assets held for sale.
The Company also identified certain other assets as liquidating, and retained
those assets in finance receivables. The reclassified assets included
approximately $2.0 billion of net finance receivables from the insurance premium
finance, retail finance, consumer mortgage, and small business administration
loan businesses of the commercial lending operation and approximately $850.0
million of tank container and domestic products equipment from the intermodal
leasing operation. A $231.6 ($159.2 after tax) million provision for expected
losses on the disposal of the businesses reclassified to assets held for sale
was taken during the year. The charge was primarily for the write-off of related
goodwill, intangibles, and for the reduction of the carrying value of these net
finance receivable portfolios to their estimated realizable value.
Certain of the assets held for sale were subsequently sold for net proceeds
of $1.7 billion. The net proceeds were used to pay down related debt and to
return capital to Transamerica. At December 31, 2000, approximately $1.2 billion
of the Company's finance receivables and equipment held for lease, net of a
valuation allowance of $125.1 million, were classified in assets held for sale
and $640.7 million of the Company's finance receivables were identified as
liquidating. The ultimate disposition of both the assets held for sale and the
liquidating finance receivables will be based on maximizing value for AEGON.
Page 15
Note B--Significant Accounting Policies
Consolidation: The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, including commercial lending,
intermodal leasing and real estate information services operations. Certain
amounts reported in the consolidated financial statements are based on
management estimates. Actual amounts may ultimately differ from those estimates.
Cash and Cash Equivalents: Cash and cash equivalents include money market
funds and marketable securities with original maturities of three months or
less.
Depreciation and Amortization: Property and equipment, including equipment
held for lease, are stated on the basis of cost and are depreciated by use of
the straight-line method over their estimated useful lives. Other intangible
assets, principally renewal, referral and other rights incident to businesses
acquired, are amortized over estimated future benefit periods ranging from 5 to
25 years. Goodwill is amortized using the straight-line method over periods up
to 40 years.
Investments: Investments in fixed maturities are generally held to maturity
and carried at amortized cost. Equity securities and exercisable stock warrants
are carried at fair value based on quoted market prices. Changes to the carrying
amount of equity securities and exercisable stock warrants are included in a
separate component of stockholder's equity. Realized gains and losses on
investment transactions are generally determined on a specific identification
basis and reflected in earnings on the trade date.
Foreign Currency Translation: The net assets and operations of foreign
subsidiaries included in the consolidated financial statements are attributable
primarily to Canadian and European operations. The accounts of these
subsidiaries have been converted at rates of exchange in effect at year-end as
to balance sheet accounts and at average rates for the year as to operations.
The effects of changes in exchange rates in translating foreign subsidiaries'
financial statements are accumulated in a separate component of stockholder's
equity.
Transactions with Affiliates: In the normal course of its operations, the
Company has various transactions with AEGON and certain of its other
subsidiaries. In addition to the filing of consolidated income tax returns, and
the transactions discussed in Notes D, J and M, these transactions include
computer and other specialized services, various types of insurance coverage and
pension administration. The effects of these transactions are insignificant for
all years presented.
Finance Charges: Finance charges, including loan origination fees, offset by
direct loan origination costs, are generally recognized on an effective yield
method. Accrual of finance charges is suspended on accounts that contractually
become past due in excess of 90 days or at the discretion of management. Accrual
of finance charges on accounts in non-accrual status is resumed only when the
accounts have been paid up to contractually current status or as conditions
warrant. Charges collected in advance, including renewal charges, on
distribution finance receivables are taken into income on a straight-line basis
over the periods to which the charges relate. At December 31, 2000 and 1999,
finance receivables for which the accrual of finance charges was suspended
amounted to $193.9 million and $136.3 million, respectively.
Leasing Revenues: Leasing revenues are earned on rentals and operating
leases. Rental revenues are recognized in the period billed. Operating lease
revenue is recognized on a straight-line basis over the lease term.
Real Estate Service Revenues: In accordance with Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial Statements, life of loan service fees
are deferred and recognized in income over the expected service period. The
Company's current revenue recognition model assumes a contract life of ten years
and is adjusted for actual prepayment experience. The Company periodically
reviews the revenue recognition model to determine if the contract lives and/or
prepayment speeds used have changed. Accordingly, the Company may adjust the
deferral period to reflect current trends.
Page 16
Allowance for Losses: The allowance for losses is maintained in an amount
that is sufficient to cover estimated uncollectible receivables. Such estimates
are based on percentages of net finance receivables outstanding developed from
historical credit loss experience and, if appropriate, a provision for deviation
from historical averages, supplemented in the case of commercial loans by
specific reserves for accounts known to be impaired. The allowance is provided
through charges against current income. Accounts are charged against the
allowance when they are deemed to be uncollectible.
Reclassification: Certain reclassifications have been made to the 1999 and
1998 consolidated financial statements to conform to the 2000 classifications.
Derivatives: The Company uses derivative financial instruments to hedge some
of its interest rate and foreign exchange rate risks. The cost of each
derivative contract is amortized over the life of the contract. The amortization
is classified with the results of the underlying hedged item. Contracts are
designated and accounted for as hedges of certain of the Company's liabilities
and outstanding indebtedness and are not marked to market. Gains or losses on
terminated hedges are deferred and amortized over the remaining life of the
hedged item. When a liability that is hedged by a derivative contract is
disposed of, the derivative contract is either reassigned to hedge another
liability or closed out and any gain or loss is recognized.
Impact of Recently Issued Accounting Standards: In June 2000, the Financial
Accounting Standards Board ("FASB") issued FASB Statement No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging Activities - an amendment
of FASB Statement No. 133 ("FAS No. 138"). FAS No. 138 addresses a limited
number of implementation issues related to FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities ("FAS No. 133"). FAS No. 133,
as amended, is effective for fiscal years beginning after June 15, 2000. FAS No.
133 establishes accounting and reporting standards requiring all derivative
instruments (including certain derivative instruments embedded in other
contracts) to be recorded in the balance sheet as either an asset or liability
measured at its fair value. It also requires that changes in a derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special ("short cut method") accounting for qualifying hedges
allows a derivative's gains and losses to offset the related results of the
hedged item in the income statement. FAS No. 133 will impact the Company's
derivative and warrant portfolios, the latter of which may be considered
derivatives under the new rules. Upon adoption, the transition adjustment to
record the Company's derivatives at fair value will be recorded as a cumulative
effect adjustment to net income. The Company will adopt FAS No. 133 on January
1, 2001. The positive cumulative effect to net income of adopting this statement
in 2001 will be approximately $9 million after tax. The adoption of this
standard may add volatility to the reported results of operations.
In September 2000, the FASB issued Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
that replaces in its entirety FASB Statement No. 125. Although the statement has
changed many of the rules regarding securitizations, it continues to require an
entity to recognize the financial and servicing assets it controls and the
liabilities it has incurred and to derecognize financial assets when control has
been surrendered in accordance with the criteria provided in the Statement. As
required, the Company will apply the new rules prospectively to transactions
initiated in the second quarter of 2001. Based on current circumstances, the
Company believes the application of this standard will not have a material
impact on its financial statements.
Income Taxes: Taxable results of each of the Company's operations are
included in the consolidated federal and certain state income tax returns filed
by Transamerica, which by the terms of a tax sharing agreement generally
requires the Company to accrue and settle income tax obligations as if the
individual operations filed separate returns with the applicable taxing
authorities. Under the tax sharing agreement, Transamerica provides an unlimited
carryforward period for the utilization of federal net operating losses and
foreign tax credits. The Company provides deferred taxes based on enacted tax
rates in effect on the dates temporary differences between the book and tax
basis of assets and liabilities are expected to reverse.
Page 17
Note C--Finance Receivables
Contractual maturities of finance receivables outstanding, at December 31,
2000 were:
Total %
---------- ---------
2001.................. $ 4,581.1 49.2%
2002.................. 1,339.3 14.4
2003.................. 1,146.1 12.3
2004.................. 647.8 7.0
2005.................. 594.9 6.4
Thereafter............ 992.4 10.7
---------- ---------
$ 9,301.6 100.0%
========== =========
The commercial lending operation's business credit unit provides revolving
lines of credit, letters of credit and standby letters of credit. At December
31, 2000 and 1999, borrowers' unused credit available under such arrangements
totaled $2,018.6 million and $2,581.4 million, respectively.
Sales of Receivables
The Company has entered into arrangements under which it securitizes and
sells distribution finance floorplan, equipment financial services loan and
lease and insurance premium finance receivables, as well as consumer mortgage
and small business administration loans. When the Company sells finance
receivables, it retains interest-only strips, servicing rights, and in some
cases a subordinated interest in the securitized finance receivables. Gains and
losses on the sale of the finance receivables depend on the previous carrying
amount of the asset allocated between assets sold and residual interests based
on their relative fair value at the date of transfer. Under these securitization
arrangements, the Company generally receives annual servicing fees and the
rights to future cash flows arising after investors in the securitization trusts
have received their specified return. Under arrangements in which the Company
services the finance receivables and there is no specified servicing fee, a
servicing liability is established to reflect the fair value of the cost to
service the portfolio. At December 31, 2000, the servicing liability totaled
$8.8 million and is included in accounts payable and other liabilities. The
investors and the securitization trusts have no recourse to the Company's other
assets for failure of debtors to pay when due. The Company's retained interests
are subordinate to the investors' interests.
The distribution finance floorplan, equipment financial services loan and
lease and insurance premium finance receivables, are revolving in nature. As
securitized finance receivables from these business units run off, newly
originated eligible finance receivables are added to the pool up to the maximum
amount available under the facility. Eligible pools of finance receivables and
the facility itself vary due to seasonal fluctuations of distribution finance
floorplan receivables. Loans and interest-only strip amounts decrease during
off-peak seasons. Alternatively, peak seasons result in increases to securitized
amounts and increased residual assets. Terms of the distribution finance
floorplan and insurance premium finance receivables are short-term in nature, 3
and 9 months, respectively, and equipment financial services loan and lease
receivables have average original terms of approximately 42 months. Consumer
mortgage loans have a maximum term of 30 years but represent less than 3% of
securitized amounts. Proceeds from collections of finance receivables, which
were reinvested in revolving securitizations for the year ended December 31,
2000, were approximately $10.0 billion. At December 31, 2000, the Company has
retained interests in the form of finance receivables, representing an over
collateralization position of $357.9 million, designated to the securitization
trusts to provide credit enhancement in the event of default of the sold
receivables.
Page 18
Retained interests are recorded at their fair value based on the present
value of expected future cash flows using management's best estimates of key
assumptions, such as discount rates, prepayment levels, average terms, yield
spreads, and credit losses. At December 31, 2000, retained interests in the form
of interest-only strips and subordinated investor certificates totaled $48.2
million, of which $38.1 million is included in other assets and $10.1 million is
included in investments. The value of interest-only strips on the revolving
securitization arrangements, which account for approximately 97% of the
securitized finance receivables, is the discounted spread between the portfolio
yields and the investor rates after the deduction of credit losses. Prepayment
levels, average terms, discount rates and credit losses are factors in the
computation of retained interests relating to the equipment financial services
loan and lease receivables. Yield spreads and average terms are key factors in
the computation related to distribution finance floorplan receivables due to the
short-term variable rate nature of the portfolio. For distribution finance
floorplan receivables, the impact of a 10% and 20% adverse change to the yield
spread assumption would reduce the fair value of the interest-only strips by
$3.6 million and $7.1 million, respectively. A 10% and 20% adverse change in the
average term assumptions would reduce its fair value by $3.6 million and $7.1
million, respectively, and would also reduce the servicing liability by $0.9
million and $1.9 million, respectively. For equipment financial services loan
and lease receivables, a 10% and 20% adverse impact on the credit loss
assumption would reduce the fair value of the interest-only strips by $0.4
million and $0.8 million, respectively. A 10% and 20% adverse impact in the
prepayment level or the discount rate assumptions would reduce the fair value of
the interest-only strips by less than $0.1 million under each assumption.
The following schedule details the securitized finance receivables at
December 31, 2000:
Securitized Finance Receivables
Distribution finance floorplan ........ $ 2,416.3
Equipment financial services loan
and lease............................ 350.0
----------
Subtotal........................... 2,766.3
Insurance premium finance.............. 360.0
Consumer mortgage loans................ 90.4
Small business administration loans.... 22.6
----------
$ 3,239.3
==========
Concentration of Risk
The Company engages in the extension of credit to a wide range of business
enterprises including electronics and appliance dealers, retail recreational
products dealers and computer stores. The majority of these loans are secured by
the assets being financed. The risk associated with this credit is subject to
economic, competitive and other influences. While a substantial portion of the
risk is diversified, certain operations are concentrated in one industry or
geographic area. The finance receivables portfolio included 14 customers with
individual balances in excess of $40 million at December 31, 2000. These
accounts in total represented 14.1% of total net finance receivables outstanding
at December 31, 2000.
Page 19
Note D--Notes and Loans Payable
December 31
----------------------------
2000 1999
---------- ----------
Short-term debt:
Commercial paper................................................... $ 3,844.3 $ 3,025.4
Bank loans......................................................... 108.4 291.0
Current portion of long-term debt:
Unsubordinated................................................... 2,408.7 845.9
Subordinated..................................................... 2.0 159.5
---------- ----------
Total short-term debt............................................. 6,363.4 4,321.8
Long-term debt:
5.42% to 11% notes and debentures, maturing through 2028........... 4,803.9 5,768.7
Zero to 6.50% notes and debentures due 2007 to 2012 issued at a
discount to yield 13.8% to 14.77%; effective cost of 12.16% to
14.69%........................................................... 227.5 210.1
6.49% to 9.95% subordinated notes and debentures maturing
through 2003..................................................... 62.5 222.0
6.39% to 7.13% intercompany notes with AEGON affiliates
maturing through 2003............................................ 400.0 -
---------- ----------
5,493.9 6,200.8
Less amounts due in less than one year............................. 2,410.7 1,005.4
---------- ----------
Total long-term debt ............................................ 3,083.2 5,195.4
---------- ----------
Total debt...................................................... $ 9,446.6 $ 9,517.2
========== ==========
The weighted average interest rate on short-term borrowings at December 31,
2000 and 1999 was 6.5% and 5.7%, respectively.
Long-term debt outstanding at December 31, 2000 matures as follows:
AEGON Average
Unsubordinated Subordinated Affiliates Total Interest Rate
--------------- ------------- ------------- ----------- ----------------
2001.............. $ 2,408.7 $ 2.0 $ - $ 2,410.7 6.30%
2002.............. 1,566.0 7.0 350.0 1,923.0 6.86%
2003.............. 290.7 53.5 50.0 394.2 6.83%
2004.............. 399.3 - - 399.3 6.77%
2005.............. 50.1 - - 50.1 6.47%
Thereafter (1).... 316.6 - - 316.6 11.22%
--------------- ------------ ------------- ----------- ---------------
$ 5,031.4 $ 62.5 $ 400.0 $ 5,493.9 6.85%
=============== ============ ============= =========== ===============
- ------------------
(1) Includes the accreted values at December 31, 2000 on original issue discount
debt and not the amount due at maturity.
Short-term borrowings are primarily in the form of commercial paper notes
issued by the Company. Such commercial paper is continuously offered, with
maturities not exceeding 270 days in the U.S. and 365 days in Canada. The cost
of short-term borrowings is directly related to prevailing rates of interest for
major finance companies in the money market; such rates are subject to
fluctuation.
Page 20
The Company's short-term borrowings are supported by non-cancelable credit
agreements with various banks. One credit agreement provides the Company with
the ability to borrow up to $3.5 billion with interest at variable rates, and
expires in 2002. The Company also has a $1.0 billion credit agreement, which
expires in 2001. There were no borrowings outstanding under the credit lines at
December 31, 2000. The credit agreements require the Company to pay an annual
fee on the amounts committed.
Years Ended December 31,
2000 1999 1998
---- ---- ----
Weighted average annual interest rate during year:
Short-term borrowings.............................. 6.40% 5.34% 5.52%
Long-term borrowings............................... 6.78% 6.36% 7.23%
Total borrowings................................... 6.64% 6.05% 6.49%
Interest payments, net of amounts received from interest rate swap
agreements, totaled $609 million in 2000, $427 million in 1999 and $377 million
in 1998.
Derivatives
The Company uses derivative financial instruments to hedge some of its
interest rate and foreign exchange rate risk. The Company uses interest rate
exchange agreements and forward contracts to hedge the interest rate risk of its
outstanding indebtedness and future commitments. The interest rate exchange
agreements are intended to help the Company more closely match the cash flow
received from its assets to the payment on its liabilities, and generally
provide that one party pays interest at a floating rate in relation to movements
in an underlying index and the other party pays interest at a fixed rate.
Forward contracts allow the Company to hedge funding commitments made for future
dates. The Company also uses cross currency exchange agreements, which fix by
contract the amounts of various currencies to be exchanged at a future date with
other contracting parties and forward exchange contracts whereby the Company
agrees to sell to other contracting parties at a future date a specified amount
of foreign currency for a specified amount of dollars. These agreements are
intended to hedge the Company's exposure to fluctuations in foreign exchange
rates when the Company settles its foreign currency denominated debt.
Page 21
At December 31, 2000 and 1999, the Company had derivative financial
instruments outstanding, with notional amounts of $2.2 billion and $2.8 billion,
respectively. These instruments are designated hedges of the Company's
liabilities and are comprised of:
2000 1999
----------------------------------- ------------------------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Pay Receive Pay Receive
Notional Interest Interest Notional Interest Interest
Amount Rate Rate Amount Rate Rate
Interest rate exchange agreements--
The Company pays:
Floating rate interest expense,
receives fixed rate interest
income........................... $ 1,820.1 6.8% 6.8% $ 2,409.1 6.3% 6.9%
Fixed rate interest expense,
receives floating rate interest
income........................... 230.4 5.7% 7.0% 278.1 5.9% 6.3%
Floating rate interest expense based
on one index and receives
floating rate interest income based
on another index................. 100.0 7.1% 7.0% 100.0 5.4% 5.7%
Cross currency exchange and
foreign interest rate swaps.......... - 25.3
Forward contracts...................... 2.8 11.0
--------- ---------
$ 2,153.3 $ 2,823.5
========= =========
While the Company is exposed to credit risk in the event of non-performance
by the counterparty, the likelihood of non-performance is considered low due to
the high credit ratings of the counterparties. At December 31, 2000, all of the
interest rate exchange agreements were with financial institutions with
investment grade ratings of A or better by one or more of the major credit
rating agencies.
Page 22
Note E--Allowance for Losses
Changes in the allowance for losses on net finance receivables and assets
held for sale were as follows:
Finance Receivables Assets Held For Sale
------------------- --------------------
Balance at December 31, 1997...... $ 89.3 $ 5.4
Provision charged to expense.... 53.0 -
Credit losses................... (41.6) -
Recoveries...................... 8.5 -
Other........................... 14.9 (4.8)
----------- -------------
Balance at December 31, 1998...... 124.1 0.6
Provision charged to expense.... 87.4 -
Credit losses................... (62.7) -
Recoveries...................... 7.3 -
Other........................... (11.6) 1.1
----------- -------------
Balance at December 31, 1999...... 144.5 1.7
Provision charged to expense.... 137.7 117.9
Credit losses................... (87.1) (9.6)
Recoveries...................... 6.3 -
Transfer to assets held for sale (34.0) 34.0
Losses realized on sale of assets - (17.6)
Other........................... (8.5) (1.3)
----------- -------------
Balance at December 31, 2000...... $ 158.9 $ 125.1
=========== =============
Note F--Dividend and Other Restrictions
Under certain circumstances, the provisions of loan agreements and statutory
requirements place limitations on the amount of funds that can be remitted by
the Company to its parent company. The loan agreements also specify the minimum
level of capital that must be maintained. At December 31, 2000, the Company's
capital level exceeded the minimum requirements by $342.1 million.
Note G--Fair Value of Financial Instruments
Finance Receivables
The carrying amounts and estimated fair values of the finance receivable
portfolio at December 31, 2000 and 1999 were as follows:
2000 1999
------------------------------ --------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------- ------------- --------------
Fixed rate receivables......... $ 2,720.4 $ 2,701.0 $ 3,079.9 $ 3,079.4
Variable rate receivables...... 5,575.8 5,575.8 5,484.2 5,484.2
------------ ------------ ------------- --------------
$ 8,296.2 $ 8,276.8 $ 8,564.1 $ 8,563.6
============ ============ ============= ==============
Page 23
The estimated fair values of the fixed rate receivables are based on the
discounted value of the future cash flows expected to be received using
available secondary market prices for securities backed by similar loans and
after adjustments for differences in loan characteristics. In the absence of
readily available market prices, the expected future cash flows are discounted
at effective rates currently offered by the Company for similar loans. For
variable rate loans, which comprise the majority of the commercial loan
portfolio, the carrying amount represents a reasonable estimate of fair value.
Notes and Loans Payable
At December 31, 2000 and 1999, the estimated fair value of debt, using rates
currently available for debt with similar terms and maturities, was $9.6
billion.
The net present value of the interest rate and cross currency exchange
agreements offset changes in the fair value of the hedged indebtedness, which is
carried at amortized cost. The fair values of interest rate and cross currency
exchange agreements are the estimated amounts that the Company would receive or
pay to terminate the agreements at the reporting date, taking into consideration
current interest rates as well as the current creditworthiness and credit
ratings of the exchange agreement counterparties. The fair value of the
liability hedges at December 31, 2000 were gross obligations to counterparties
of $2.1 million and gross benefits of $45.8 million, resulting in a net benefit
of $43.7 million. The fair value of the liability hedges at December 31, 1999
were gross obligations to counterparties of $28.2 million and gross benefits of
$7.6 million, resulting in a net obligation of $20.6 million.
Note H--Income Taxes
Provision (benefit) for income taxes comprised:
Years Ended December 31
---------------------------------------
2000 1999 1998
----------- ----------- -----------
Current taxes:
Federal.................... $ 11.8 $ 9.5 $ -
State...................... 7.6 7.7 6.0
Foreign.................... 5.6 7.1 4.3
----------- ----------- -----------
25.0 24.3 10.3
Deferred taxes:
Federal.................... 6.9 86.6 94.7
State...................... 5.7 5.3 8.6
Foreign.................... (5.4) 5.8 (5.9)
----------- ----------- -----------
7.2 97.7 97.4
----------- ----------- -----------
$ 32.2 $ 122.0 $ 107.7
=========== =========== ===========
The difference between federal income taxes computed at the statutory rate
and the provision for income taxes was:
Years Ended December 31
---------------------------------------------
2000 1999 1998
------------- ----------- ------------
Federal income taxes at statutory rate.................. $ 18.1 $ 109.7 $ 107.0
State income taxes, net of federal income tax benefit... 8.6 8.4 9.5
Book and tax basis difference of assets acquired........ 13.8 5.6 5.8
Tax benefit realized in refinancing certain equipment... (9.5) - (6.7)
Prior year items........................................ - - (6.5)
Other................................................... 1.2 (1.7) (1.4)
------------- ----------- ------------
$ 32.2 $ 122.0 $ 107.7
============= =========== ============
Page 24
Deferred income taxes reflect the net tax effects or temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax assets and
liabilities comprised the following at December 31:
2000 1999
---------- ---------
Deferred tax assets:
Allowance for losses....................................... $ 102.2 $ 57.0
Net operating loss and foreign tax credit carryforwards.... 203.6 432.2
Deferred real estate services revenues..................... 113.4 128.1
Other...................................................... 100.9 85.5
---------- ----------
520.1 702.8
Deferred tax liabilities:
Accelerated depreciation................................... 445.2 664.0
Discount amortization on notes and loans payable........... 98.3 96.1
Direct finance and sales type leases....................... 283.7 222.7
Other...................................................... 70.1 84.4
---------- ---------
897.3 1,067.2
---------- ---------
Net deferred tax liability................................ $ 377.2 $ 364.4
========== =========
Income tax payments, net of refunds, totaled $23.5 million in 2000, $19.7
million in 1999 and $37.2 million in 1998. Pretax income from foreign operations
was $18.9 million in 2000, $30.1 million in 1999 and $14.6 million in 1998.
Note I--Comprehensive Income
The components of other comprehensive income in the statement of
stockholder's equity are shown net of the following tax provision (benefit):
Years Ended December 31
------------------------------------------
2000 1999 1998
------------ ------------ ------------
Income tax provision (benefit) on other comprehensive income:
Unrealized gains from investments marked to fair value............... $ 6.2 $ 11.2 $ -
Gains reclassified into earnings from other comprehensive income..... (6.6) - -
Foreign currency translation adjustments............................. (3.8) (4.1) 3.6
------------ ------------ ------------
$ (4.2) $ 7.1 $ 3.6
============ ============ ============
Note J--Pension and Stock Savings Plans and Other Post Employment Benefits
The Company participates with Transamerica and its subsidiaries in a number
of non-contributory defined benefit pension plans covering most salaried
employees. The Company also participates in various programs sponsored by
Transamerica that provide medical and certain other benefits to eligible
retirees. The Company also participates in the Transamerica Corporation Employee
Stock Savings Plan ("the 401(k) plan"). The 401(k) plan is a contributory
defined contribution plan covering eligible employees who elect to participate.
The Company recognized, for both the pension plans and the 401(k) plan, income
of $1.9 million in 2000, income of $2.1 million in 1999 and expense of $1.4
million in 1998.
Page 25
Note K--Commitments and Contingencies
The Company and its subsidiaries have non-cancelable lease agreements
expiring mainly through 2005. These agreements are principally operating leases
for facilities used in the Company's operations. Total rental expense amounted
to $80.5 million in 2000, $83.1 million in 1999 and $82.5 million in 1998.
Minimum future rental commitments under operating leases for real estate
and equipment at December 31, 2000 were as follows:
2001................ $ 69.6
2002................ 68.9
2003................ 61.1
2004................ 44.6
2005................ 60.9
Thereafter.......... 70.2
--------
$ 375.3
========
Contingent liabilities arising from litigation, income taxes and other
matters are not expected to have a material effect on the consolidated financial
position or results of operations of the Company and its subsidiaries.
Note L--Business Segment Information
Business segment data, as required by Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, for each of the years in the three year period ended December 31,
2000, included in the tables on pages 27 to 35 of Management's Narrative
Analysis of Results of Operations, are an integral part of these financial
statements.
Years Ended December 31,
2000 1999 1998
------------- ------------- --------------
Revenues:
Commercial lending............... $ 1,233.3 $ 1,016.8 $ 768.5
Intermodal leasing............... 684.8 710.8 764.2
Real estate information services. 253.0 293.6 273.4
Other (1)........................ 5.4 23.8 20.2
------------- ------------- --------------
$ 2,176.5 $ 2,045.0 $ 1,826.3
============= ============= ==============
December 31,
-------------------------------
2000 1999
------------- -------------
Assets:
Commercial lending............... $ 10,358.0 $ 9,576.8
Intermodal leasing............... 2,158.5 3,263.0
Real estate information services. 215.0 257.8
Other (1)........................ 156.3 83.0
------------- -------------
$ 12,887.8 $ 13,180.6
============= =============
- ------------------
(1) Unallocated items including intercompany eliminations.
Page 26
Foreign revenues of the Company's foreign domiciled operations were as follows:
Years Ended December 31,
------------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- ---------------------------- ----------------------------
Foreign Foreign Foreign
Revenue % Revenue % Revenue %
----------- ----------- ------------ ----------- ----------- -------------
Canada..................... $ 50.9 20.3 % $ 43.6 18.4 % $ 21.2 10.4 %
Europe..................... 188.5 75.4 184.1 77.5 181.3 88.8
Other...................... 10.7 4.3 9.7 4.1 1.6 0.8
----------- ----------- ------------ ----------- ----------- --------------
$ 250.1 100.0 % $ 237.4 100.0 % $ 204.1 100.0 %
=========== =========== ============ =========== =========== ==============
Percent of total revenues.. 11.5% 11.6% 11.2%
Note M--Advances Due From Affiliates
Advances due from the Company's affiliates consisted of unsecured
receivables of $225.6 million at December 31, 2000 and $159.9 million at
December 31, 1999. The receivables are payable on demand, and except for $83.1
million at December 31, 2000 and 1999, are interest bearing. The interest
bearing receivables bear interest at a rate that varies based on the Company's
average cost of borrowings. The weighted average interest rate was 6.6% in 2000,
6.3% in 1999 and 6.5% in 1998. The Company recognized interest income in 2000
and 1999 of $3.8 million and $3.9 million, respectively, and interest expense in
1998 of $0.8 million. At times throughout the year, the Company may be in a
borrowing position with its affiliates. Interest may be payable on the
borrowings.
Page 27
TRANSAMERICA FINANCE CORPORATION
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
Transamerica Finance Corporation is a wholly owned subsidiary of
Transamerica Corporation ("Transamerica"). Transamerica is a financial services
organization that engages primarily through its subsidiaries in life insurance,
commercial lending, intermodal leasing and real estate services. Transamerica
Finance Corporation includes Transamerica's commercial lending, intermodal
leasing and real estate information services operations. At December 31, 2000,
Transamerica contributed its investment in the real estate information services
to Transamerica Finance Corporation. The contribution was accounted for as a
pooling of interests. As a result, all prior period financial statements and
other financial disclosures have been restated to include the accounts and
results of operations of real estate information services. Unless the context
indicates otherwise, the terms "Company" and "Registrant" as used herein refer
to Transamerica Finance Corporation and its subsidiaries.
The following table sets forth income by business segment for the years
indicated:
Years Ended December 31,
---------------------------------------------------
2000 1999 1998
------------ ------------ ----------
(Dollar amounts in millions)
Income (loss) from operations:
Commercial lending....................... $ (27.8) $ 138.0 $ 115.1
Intermodal leasing....................... 43.0 20.9 51.6
Real estate information services......... 20.1 47.3 57.2
Other.................................... 1.3 3.0 (10.1)
------------ ------------ ----------
36.6 209.2 213.8
Amortization of goodwill................... (17.0) (18.0) (15.8)
------------ ------------ ----------
Net income............................. $ 19.6 $ 191.2 $ 198.0
============ ============ ==========
The following discussion should be read in conjunction with the information
presented under Item 1, Business.
Commercial Lending
The commercial lending operation makes commercial loans through three
businesses: distribution finance, business credit and equipment financial
services. Effective January 1, 2000, the intermodal leasing operation's
international structured finance business is included with the equipment
financial services business. Prior period amounts have been restated to reflect
its inclusion.
Page 28
The following table shows the results of the commercial lending operation
for each of the years presented:
Years Ended December 31,
------------------------------------------
2000 1999 1998
------------ ----------- ----------
(Dollar amounts in millions)
REVENUES...................................... $ 1,233.3 $ 1,016.8 $ 768.5
EXPENSES
Interest.................................... 499.5 325.2 229.6
Operating expenses.......................... 395.1 387.0 315.4
Provision for losses on receivables......... 137.7 87.4 53.0
Provision for losses on disposal of assets
of business units......................... 231.6 - -
Income taxes (benefits)..................... (2.8) 79.2 55.4
------------ ----------- ----------
1,261.1 878.8 653.4
------------ ----------- ----------
Income (loss) from operations............. (27.8) 138.0 115.1
Amortization of goodwill...................... (15.0) (16.0) (13.8)
------------ ----------- ----------
Net income (loss)....................... $ (42.8) $ 122.0 $ 101.3
============ =========== ==========
Commercial lending's net loss for 2000 was $42.8 million compared to net
income of $122.0 million in 1999. Income from operations for 2000 decreased
$165.8 million (120%) from 1999. Operating results for 2000 included a $231.6
million charge ($159.2 million after tax) resulting from the decision to exit
the insurance premium finance, retail finance, consumer mortgage, and small
business administration loan businesses. The charge is primarily for the
write-off of related goodwill, intangibles, and for the reduction of the
carrying value of the net finance receivable portfolios to their estimated
realizable value. The net finance receivables of these businesses, totaling
$2,043.3 million, were reclassified to assets held for sale. In the third
quarter of 2000, the commercial lending operation sold assets consisting of
consumer mortgage net finance receivables at their net carrying value of $536.1
million. In the fourth quarter of 2000, the commercial lending operation sold
$104.2 million of retail net finance receivables, which resulted in a $1.2
million after tax gain, and it sold the receivables of the European insurance
premium finance business at their net carrying value of $188.6 million. Also
included in the 2000 results was an after tax gain of $12.3 million from the
sale of a portion of stock received from the exercise of stock warrants from the
business credit business and a $1.7 million after tax charge resulting from
accelerated amortization of premiums from the termination of the $150 million
retail revolving credit card securitization. Operating results for 1999 included
$18.6 million in after tax gains from the sale of a portion of the stock
received from the exercise of stock warrants by the business credit business and
$2.5 million in after tax gains from the sale and securitization of finance
receivables. Operating results in 1998 included $7.2 million in after tax gains
from the sale and securitization of finance receivables, a $6.5 million tax
benefit from the resolution of prior year tax matters, and a $2.1 million after
tax charge for losses and the restructuring of the insurance premium finance
business.
Excluding the above items, commercial lending income from operations
increased $2.6 million (2%) in 2000 and $13.4 million (13%) in 1999. Higher
average net finance receivables outstanding contributed to these increases in
both 2000 and 1999. Margins were compressed in 2000 as a result of reduced
spreads between the indices at which the operation lends and borrows. Margins
also were compressed due to competition in selected markets.
Commercial lending revenues rose by $216.5 million (21%) in 2000 and $248.3
million (32%) in 1999. In both periods, revenues rose principally as a result of
growth in average net finance receivables outstanding. Revenues in 2000 and 1999
included $19.6 million and $29.5 million of gains on the sale of stock,
respectively.
Page 29
Interest expense increased $174.3 million (54%) in 2000 and $95.6 million
(42%) in 1999. Higher average debt levels to support finance receivables growth
and a higher average interest rate on borrowings contributed to the increase in
2000. The increase in 1999 was primarily due to higher average debt levels
needed to support receivable growth which more than offset lower interest rates
when compared to 1998. Operating expenses in 2000 increased $8.1 million (2%)
over 1999. Operating expenses in 1999 increased $71.6 million (23%) over 1998,
principally as a result of costs related to product line expansion and servicing
of finance receivables. The provision for losses on finance receivables
increased $50.3 million (58%) in 2000, principally as a result of increased net
credit losses and higher non-earning finance receivables. In 1999, the provision
for losses on finance receivables increased $34.4 million (65%), principally as
a result of growth in finance receivables. Credit losses, net of recoveries, on
an annualized basis as a percentage of average net finance receivables
outstanding (average net finance receivables outstanding include those of
businesses classified as assets held for sale or sold in 2000), net of unearned
finance charges, were 0.95% in 2000, 0.77% in 1999 and 0.67% in 1998.
Net finance receivables outstanding at December 31, 2000 decreased $253.5
million (3%) from December 31, 1999. In 2000, the commercial lending operation
reclassified its insurance premium finance, retail finance, consumer mortgage,
and small business administration loan businesses' net finance receivables to
assets held for sale. At December 31, 2000, $1,244.0 million of net finance
receivables were in assets held for sale and $640.7 million of finance
receivables were identified as liquidating. Excluding the reclassification
effect, net finance receivables at December 31, 2000 increased by $1,250.6
million (17%) from December 31, 1999. In 2000, the commercial lending operation
terminated the $150.0 million retail revolving credit card securitization. In
1999, the commercial lending operation increased the pool levels of securitized
finance receivables by $300.0 million of distribution finance floorplan and
$150.0 million of equipment financial services loan and lease finance
receivables, and securitized $150.0 million of retail revolving credit card
receivables. Management has established an allowance for losses of $158.9
million (1.88% of net finance receivables outstanding) at December 31, 2000,
compared to $144.5 million (1.66% of net finance receivables outstanding) at
December 31, 1999.
Effective in the second quarter of 2000, the policies used for the
determination of delinquent and non-earning finance 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 non-earning data presented as of
December 31,1999 have been restated using this methodology.
Delinquent finance receivables are defined as the installment balance for
distribution finance and business credit asset-based lending finance receivables
more than 60 days past due and the finance receivable balance for all other
finance receivables over 60 days past due. At December 31, 2000, delinquent
finance receivables were $128.5 million (1.38% of finance receivables
outstanding) compared to $139.6 million (1.48% of finance receivables
outstanding) at December 31, 1999.
Non-earning finance receivables are defined as balances from borrowers that
are more than 90 days delinquent for non-credit card finance receivables or at
such time as full collectability becomes doubtful. Non-earning finance
receivables on revolving credit card accounts included in retail are defined as
balances from borrowers in bankruptcy and accounts for which full collectability
is doubtful. Non-earning finance receivables were $193.9 million (2.08% of
finance receivables outstanding) at December 31, 2000 compared to $136.3 million
(1.44% of finance receivables outstanding) at December 31, 1999. The increases
in non-earning finance receivables were primarily in the business credit and
equipment financial services businesses.
Page 30
At December 31, 2000, the net finance receivables of the insurance premium
finance, retail finance, consumer mortgage, and small business administration
loan businesses were classified in the balance sheet as assets held for sale.
The December 31, 1999 delinquent and non-earning amounts have not been restated.
At December 31, 1999, delinquent and non-earning finance receivables of these
businesses were $61.0 million (4.06% of net finance receivables outstanding) and
$39.1 million (2.60% of net finance receivables outstanding), respectively.
Assets held for sale at December 31, 2000 totaled $1,130.1 million, net of a
$125.1 million valuation allowance, and consisted of insurance premium finance,
retail finance, consumer mortgage, and small business administration loan net
finance receivables and other repossessed assets. Assets held for sale at
December 31, 1999 totaled $7.2 million. Of the net finance receivables
classified as assets held for sale at December 31, 2000, $78.1 million (6.28% of
net finance receivables held for sale) were delinquent and $57.2 million (4.60%
of net finance receivables held for sale) were classified as non-earning.
Intermodal Leasing
Intermodal leasing's financial results for 2000 and prior years reflect the
operation's marine container, tank container, domestic products, and European
trailer businesses. Effective January 1, 2000, the operation's international
structured finance business is included with the Company's commercial lending
operation. Prior period amounts have been restated to reflect this change. In
the second half of 2000, the operation's tank container and domestic products
businesses were sold.
The following table shows the results of the intermodal leasing operations
for each of the years presented:
Years Ended December 31,
-------------------------------------------
2000 1999 1998
---------- ---------- ----------
(Dollar amounts in millions)
REVENUES ................................ $ 684.8 $ 710.8 $ 764.2
EXPENSES
Operating expenses..................... 262.3 273.7 281.7
Depreciation on equipment held for lease 271.5 293.0 281.5
Interest............................... 94.7 109.9 127.4
Income taxes........................... 13.3 13.3 22.0
---------- ---------- ----------
641.8 689.9 712.6
---------- ---------- ----------
Income from operations............... 43.0 20.9 51.6
Amortization of goodwill................. (2.0) (2.0) (2.0)
---------- ---------- ----------
Net income......................... $ 41.0 $ 18.9 $ 49.6
========== ========== ==========
Income from operations in 2000 included a $35.6 million after tax gain
related to the sale of the tank container and domestic products businesses
mentioned above, $9.5 million of net tax benefits associated with a structured
financing of certain European trailer equipment and a $6.5 million after tax
valuation loss provision on certain European trailer equipment. Income from
operations in 1999 included a $4.9 million after tax benefit from the
termination of a leveraged lease, a $2.8 million after tax benefit from the
favorable settlement of an outstanding escrow claim, a $2.0 million after tax
benefit from the reversal of a 1997 realignment provision and a $5.6 million
after tax loss resulting from a loss provision for certain aged refrigerated
containers. Excluding these special items, income in 2000 decreased $12.4
million (74%), primarily as a result of the continued decline in marine
container per diem rates and higher positioning operating costs. Lower earnings
were also experienced in the European trailer business due to lower rates and
higher operating costs.
Intermodal leasing income from operations in 1999 decreased $30.7 million
(59%) from 1998. Excluding the special items mentioned above for 1999 and
excluding the $6.7 million in net tax benefits realized in 1998 from a tax
efficient structured equipment financing, income from operations decreased in
1999 by $28.1 million (63%), primarily as a result of fewer marine container
units on-hire, higher positioning costs, lower utilization of a larger fleet in
the European trailer business and higher costs in complying with U.S. Federal
highway regulations.
Page 31
Revenue for 2000 decreased $26.0 million (4%) versus 1999 primarily
attributable to the continued reduction in per diem rates on expiring term
contracts reflective of lower cost for new equipment in the marine container
business and resulting from intermodal leasing's sale of the tank container and
domestic products businesses. Lower rates and on-hires also were experienced in
special containers due to continued low demand for this equipment type. Lower
revenue also was experienced in the European trailer business as a result of
lower per diem rates and a $10.0 million pretax loss provision on certain idle
equipment. Offsetting these revenue decreases was a pretax $58.8 million gain on
the sale of the tank container and domestic products businesses.
Revenue for 1999 decreased $53.4 million (7%) as compared to 1998. Trade
imbalances between Asia, the United States and Europe, and an oversupply of
marine container equipment negatively affected container on-hire levels and per
diem rates. Revenue was also lower due to a $9.1 million pretax loss provision
for certain aged refrigerated containers. Weak economic growth in Europe during
1999 had a negative impact on the demand for European short-term rental
trailers.
Expenses for 2000 decreased $48.1 million (7%) from 1999 due primarily to
lower ownership and selling and administrative expenses resulting from
intermodal leasing's sale of the tank container and domestic products
businesses. These decreases were partially offset by higher positioning
expenditures for marine containers and higher European trailer repair and
maintenance operating expenses attributable to a larger fleet.
Expenses for 1999 decreased $22.7 million (3%) from 1998 due primarily to
lower interest expense and income taxes. These decreases were partially offset
by higher storage costs associated with a larger off-hire fleet, higher
positioning expenditures and the cost of complying with U.S. Federal Highway
regulations related to the domestic chassis fleet.
Marine container utilization averaged 78% in 2000, 75% in 1999 and 77% in
1998. European trailer utilization was 84% in 2000, 81% in 1999 and 88% in 1998.
Real Estate Information Services
Real estate information services provides property tax monitoring, flood
certification, and other real estate information services to its customers. The
largest component of this operation is the tax monitoring business, which
provides tax monitoring services to mortgage lenders nationwide.
In August 2000, the operation contributed its Intellitech business in
exchange for a 41% equity interest in First American Real Estate Solutions, L.P.
("FARES"). Subsequent to the contribution, the operation sold 51% of its
interest in FARES for $22.5 million, which resulted in an after tax loss of $1.7
million in 2000.
Page 32
The following table shows the results of the real estate information
services operations for each of the years presented:
Years Ended December 31,
-------------------------------------------
2000 1999 1998
----------- ---------- ----------
(Dollar amounts in millions)
REVENUES ................................... $ 253.0 $ 293.6 $ 273.4
EXPENSES
Operating expenses........................ 211.1 215.7 180.0
Income taxes.............................. 21.8 30.6 36.2
----------- ---------- ----------
232.9 246.3 216.2
----------- ---------- ----------
Net income............................... $ 20.1 $ 47.3 $ 57.2
=========== ========== ==========
Net income from real estate information services was $20.1 million in 2000,
down $27.2 million (58%) from 1999 due primarily to a decrease in loan
origination volume and the loss on the sale of its equity interest in FARES. Net
income in 1999 decreased from 1998 due to higher operating expense associated
with increased loan origination volume in 1999 and 1998, increased contracts
under management, and an increase in the percentage of the operations customers
that contracted for tax payment outsourcing services.
Real estate information services revenue decreased $40.6 million (14%) in
2000 as a result of decreased loan origination volume, a decline in fees charged
on life of loan contracts, and the contribution of the Intellitech business to
FARES. Real estate information services revenue increased $20.2 million (7%) in
1999, primarily due to the increased loan origination activity in 1999 and 1998.
Total new life of loan volumes were 4.4 million contracts for 2000, 5.3 million
contracts for 1999 and 5.5 million contracts for 1998.
Operating expense in 2000 decreased primarily due to the contribution of the
Intellitech business to FARES and management's decision to terminate the
factoring of its accounts receivable. This decrease was partially offset by
increased tax payment liability issues related to the growth of the operation's
tax payment outsourcing services and increased operating expenses associated
with higher 1998 and 1999 loan volume. Operating expenses increased in 1999
primarily due to higher payroll costs associated with increased tax payment
outsourcing services and more tax contracts under service and the discount on
the factoring of higher volumes of accounts receivable.
Other
Other consists primarily of miscellaneous income, unallocated interest and
other expenses. Results in 2000 included $6.1 million in after tax gains from
the sale of certain assets and the reversal of reserves related to the Company's
previously sold consumer lending operation. The favorable results in 1999 were
primarily due to an $11.0 million after tax gain on the sale of its reverse
mortgage business and improved operating results in this business in the period
leading up to its sale.
Market Risk
Market risk is the risk of loss that may occur when fluctuations in interest
and currency exchange rates and equity and commodity prices change the value of
a financial instrument. Both derivative and non-derivative financial instruments
have market risk so the Company's risk management extends beyond derivatives to
encompass all financial instruments it holds that are sensitive to market risk.
The Company is primarily exposed to interest rate risk.
Page 33
Interest Rate Risk
The Company's operations are subject to risk from interest rate fluctuations
when there is a difference between the amount of its interest earning assets and
the amount of its interest bearing liabilities that prepay, mature or reprice in
specified periods. It manages its exposure to interest rate fluctuations by
managing the characteristics of its assets and liabilities so that changes are
offset. The Company's objectives for asset/liability management are to provide
maximum levels of finance income and minimize funding costs while maintaining
acceptable levels of interest rate and liquidity risk and facilitating its
funding needs. To help achieve these objectives, the Company uses derivative
financial instruments, including interest rate swaps, that correlate to
instruments recorded on its balance sheet.
If market interest rates on December 31, 2000 and 1999 abruptly increased
75 basis points, the fair value of the Company's finance receivables portfolio,
including finance receivables in assets held for sale, would decrease
approximately $62 million and $52 million, respectively, the fair value of its
debt would decrease approximately $89 million and $102 million, respectively,
and the fair value of its interest rate swaps would decrease approximately $26
million and $49 million, respectively. Conversely, if rates on December 31, 2000
and 1999 abruptly decreased 75 basis points the fair value of its finance
receivables portfolio would increase approximately $66 million and $61 million,
respectively, the fair value of its debt would increase approximately $95
million and $108 million, respectively, and the fair value of its interest rate
swaps would increase approximately $28 million and $54 million, respectively.
The Company determined these amounts by considering only the impact of the
hypothetical interest rate change. These analyses do not consider the possible
effect that a change in economic activity could have in such an environment. In
the event of a change of such magnitude, the Company would likely take action to
mitigate its exposure to the negative consequences. The Company's customers and
competitors would also respond to these fluctuations, and regulators or
legislators might act in ways it cannot foresee. Because the Company cannot be
certain of the specific actions that would be taken or of the effects on those
operations, the sensitivity analysis above assumes no significant changes in the
Company's financial structure.
For a further discussion regarding borrowing activities and related use of
derivatives, see Note D of Notes to Consolidated Financial Statements included
in Item 8.
Page 34
Impact of Adopting New Accounting Standard
The Company will adopt FAS No. 133, as amended, on January 1, 2001. The
adoption of FAS No. 133 will impact the Company in two areas. First, the Company
has derivatives, mostly interest rate swaps, which are used in connection with
managing the interest rate risk of its debt portfolio. Substantially all of the
Company's debt related derivatives were hedge eligible prior to the adoption of
FAS No. 133. Following the adoption of FAS No. 133, the Company will identify
the following categories of such derivatives: fair value and cash flow hedges
qualifying for "short cut method" and trading derivatives. Most of the
derivatives that will be classified as trading derivatives previously had
hedging relationships that were similar to "fair value type hedges." Following
the adoption, the transition adjustment to record the derivatives at fair value
will be recorded as a cumulative effect adjustment in net income. Concurrently,
to the extent the hedged items' carrying amounts are different from their fair
value, an adjustment to the carrying amount of the hedged items will be required
(not to exceed the fair value of each hedged item or the transition adjustment
related to each derivative). These adjustments to the carrying amounts will be
recognized as a cumulative effect adjustment in net income and will act to
offset the transition adjustment related to the derivatives. To the extent that
the hedged items were already recorded at fair value or the adjustment to record
the hedged items at fair value is less than the transition adjustment to record
the derivatives at fair value, there will be an income statement effect.
Following the adoption, these trading derivatives will continue to be treated as
hedges. Changes in fair value of these derivatives, in accordance with FAS No.
133, will then be recognized in current earnings with no offsetting basis
adjustments to the previously hedged items. Second, under FAS No. 133, stock
warrants that the Company receives in connection with its business credit
business may be considered derivatives. This derivative treatment would require
the warrants to be recorded on the balance sheet and marked to market through
the income statement. The cost of stock acquired from warrants will be the fair
value of the warrant at exercise, plus the exercise price. The positive
cumulative effect on net income of adopting this statement in 2001 will be
approximately $9 million after tax. The adoption of this standard may add
volatility to the reported results of operations.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
The statements contained in this report, which are not historical facts,
are forward-looking statements. When included in this report, the words
"expects", "intends", "anticipates", "estimates", and analogous expressions are
intended to identify forward-looking statements. Such statements inherently are
subject to a variety of risks and uncertainties that could cause actual results
to differ materially from those projected. Such risks and uncertainties include,
among others, general economic and business conditions, competition, changes in
financial markets (credit, currency, commodities and stocks), changes in
foreign, political, social and economic conditions, regulatory initiatives and
compliance with governmental regulations, judicial decisions and rulings, and
various other matters, many of which are beyond the Company's control. These
forward-looking statements speak only as of the date of this Report. The Company
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statement contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any statement is based.
Page 35
TRANSAMERICA FINANCE CORPORATION
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollar amounts in millions)
Previously Previously Previously
Reported Restated(1) Reported Restated(1) Reported Restated(1)
2000 March 31 March 31 June 30 June 30 September 30 September 30 December 31
---- -------- -------- ------- ------- ------------ ------------ -----------
Revenues $ 464.5 $ 530.6 $ 499.5 $ 566.5 $ 474.2 $ 538.4 $ 541.0
Net income (loss) $ 37.1 $ 41.3 $ (21.8) $ (16.2) $ (69.4) $ (62.6) $ 57.1
Previously Previously Previously Previously
Reported Restated(1) Reported Restated(1) Reported Restated(1) Reported Restated(1)
1999 March 31 March 31 June 30 June 30 September 30 September 30 December 31 December 31
---- -------- -------- ------- ------- ------------ ------------ ----------- -----------
Revenues $ 414.6 $ 495.6 $ 436.6 $ 511.4 $ 423.9 $ 495.2 $ 476.3 $ 542.8
Net income $ 24.4 $ 40.8 $ 44.7 $ 57.3 $ 33.7 $ 44.0 $ 41.1 $ 49.1
(1) Previously reported quarterly results have been restated to reflect
accounting change for pooling of interests discussed in Item 1, Business.
Page 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted in accordance with General Instruction I.
ITEM 11. EXECUTIVE COMPENSATION
Omitted in accordance with General Instruction I.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted in accordance with General Instruction I.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted in accordance with General Instruction I.
Page 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Consolidated financial Statements (included in Item 8).
Report of Independent Auditors dated February 9, 2001.
Consolidated Balance Sheets at December 31, 2000 and 1999.
Consolidated Statements of Operations for the years ended December
31, 2000, 1999, and 1998.
Consolidated Statements of Cash Flows for the years ended December
31, 2000, 1999, and 1998.
Consolidated Statements of Stockholder's Equity for the years
ended December 31, 2000, 1999, and 1998.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules
Financial statement schedules have been omitted because they are
either not applicable or the required information has been
disclosed in the consolidated financial statements or the related
footnotes.
(3) List of Exhibits:
3(i) Transamerica Finance Corporation Restated Certificate of
Incorporation, as amended, (incorporated by reference to Exhibit
3.1 to Registrant's Form 10-K Annual Report (File No. 1-6798) for
the year ended December 31, 1988 and Exhibit 3.1a to Registrant's
Form 10-K Annual Report (File No. 1-6798) for the year ended
December 31,1990).
3(ii) Transamerica Finance Corporation By-Laws, as amended, last
amendment--February 19, 1991 (incorporated by reference to Exhibit
3(ii) to Registrant's Form 10-K Annual Report (File No. 1-6798) for
the year ended December 31, 1994).
4.1 Indenture dated as of April 1, 1991 between Registrant and Harris
Trust and Savings Bank, as Trustee (incorporated by reference to
Exhibit 4.1 to Registrant's Registration Statement on Form S-3
(File No. 33-40236) as filed with the Commission on August 16,
1991).
4.2*
12 Ratio of Earnings to Fixed Charges Calculation.
(b) Reports on Form 8-K filed in the fourth quarter of 2000: None
(c) Exhibits: Certain of the exhibits listed in Item (a) 3 above have been
submitted under separate filings, as indicated.
* Pursuant to the instructions as to exhibits, the Registrant is not filing
certain instruments with respect to long-term debt since the total amount of
securities currently authorized under each of such instruments does not
exceed 10% of the total assets of the Registrant and its subsidiaries on a
consolidated basis. The Registrant hereby agrees to furnish a copy of any
such instrument to the Securities and Exchange Commission upon request.
Page 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ ROSARIO A. PERRELLI
---------------------------------------
Rosario A. Perrelli, Executive Vice
President and Chief Financial Officer
Date: March 8, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 8, 2001 by the following persons on behalf
of the Registrant and in the capacities indicated.
Signature Title
Principal Executive Officer:
/s/ ROBERT A. WATSON Chairman of the Board of Directors
- ----------------------------------------- and Chief Executive Officer
(Robert A. Watson)
Principal Financial Officer:
/s/ ROSARIO A. PERRELLI Executive Vice President and
- ----------------------------------------- Chief Financial Officer
(Rosario A. Perrelli)
Principal Accounting Officer:
/s/ THOMAS G. BASTIAN Senior Vice President and
- ----------------------------------------- Controller
(Thomas G. Bastian)
Directors:
/s/ PATRICK S. BAIRD Director
- -----------------------------------------
(Patrick S. Baird)
/s/ JAMES A. BEARDSWORTH Director
- -----------------------------------------
(James A. Beardsworth)
/s/ RUSSELL T. CHARLTON Director
- -----------------------------------------
(Russell T. Charlton)
/s/ RICHARD N. LATZER Director
- -----------------------------------------
(Richard N. Latzer)
/s/ JOSEPH B.M. STREPPEL Director
- -----------------------------------------
(Joseph B.M. Streppel)
/s/ GEORGE B. SUNDBY Director
- -----------------------------------------
(George B. Sundby)
/s/ MITCHELL F. VERNICK Director
- -----------------------------------------
(Mitchell F. Vernick)