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PAGE 1
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 Commission file number 1-6798
December 31, 1993
Transamerica Finance Corporation
(Exact name of registrant as specified in its charter)
Delaware 95-1077235
--------- -----------
(State or other jurisdication (I.R.S. Employer
of incorporation or organization) Identifcation No.)
1150 South Olive Street
Los Angeles, California 90015
------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 742-4321
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
-------------------- -----------------------
8-1/2% Notes Maturing at Holder's Option
Annually on July 1 and due July 1, 2001 New York Stock Exchange
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. YES__X__ 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. ( ) Not Applicable
All of the outstanding shares of the registrant's capital stock
are owned by Transamerica Finance Group, Inc., which is wholly owned by
Transamerica Corporation.
Number of shares of common stock, $10 par value, outstanding as of
close of business on March 14, 1994: 1,464,285.
The registrant meets the conditions set forth in General
Instruction J(1)(a) and (b) of Form 10-K and is therefore filing this
form with the reduced disclosure format.
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(THIS PAGE INTENTIONALLY LEFT BLANK)
PAGE 3
PART I
ITEM 1. BUSINESS
THE COMPANY
Transamerica Finance Corporation, a wholly owned subsidiary of
Transamerica Finance Group, Inc. ("TFG") which is a wholly owned
subsidiary of Transamerica Corporation, is principally engaged in
consumer lending, commercial lending and leasing operations. Unless
the context indicates otherwise, the terms "Company" and "Registrant"
as used herein refer to Transamerica Finance Corporation and its
subsidiaries.
Transamerica Corporation (Transamerica) is a financial services
organization which engages through its subsidiaries in consumer
lending, commercial lending, leasing, real estate services, life
insurance and asset management. Transamerica was incorporated in
Delaware in 1928.
The Company was incorporated in Delaware in 1931 under the name
Pacific Finance Corporation, as successor to a California corporation
of the same name organized in 1920. In 1961, the Company became a
wholly owned subsidiary of Transamerica Corporation, which in 1990
formed TFG to own all the Company's outstanding capital stock.
On July 17, 1990, the Company acquired FIFSI, Inc. (dba NOVA
Financial Services), a consumer lending subsidiary of First Interstate
Bancorp, for $117,455,000 in cash and the assumption of $445,400,000 of
liabilities. The transaction was accounted for as a purchase and the
operations of NOVA Financial Services have been included in the
Consolidated Statement of Operations from the date of acquisition.
The Company provides funding for its subsidiaries' consumer lending,
commercial lending and leasing operations and for the operations of
certain wholly owned subsidiaries of TFG. Capital is allocated among
the operations based on their capital needs. The operations are
required to maintain prudent financial ratios consistent with other
companies in their respective industries. The Company's total notes
and loans payable were $7,031,503,000 at December 31, 1993 and
$6,589,576,000 at December 31, 1992. Variable rate debt was
$3,970,484,000 at December 31, 1993 and $3,492,842,000 at
December 31, 1992. The ratio of debt to debt plus equity was 83% at
December 31, 1993 and 82% at December 31, 1992.
Transamerica Finance Corporation offers publicly, from time to time,
senior or subordinated debt securities. Public debt issued totaled
approximately $407,000,000 in 1993, $538,700,000 in 1992 and
$1,107,800,000 in 1991. Under a shelf registration filed with the
Securities and Exchange Commission in 1991 to offer publicly up to
$1,500,000,000 of senior or subordinated debt securities with varying
terms, debt securities totaling $1,400,000,000 had been sold through
December 31, 1993. In addition, under a registration statement filed
in July 1993, the Company may offer up to $2,000,000,000 of senior or
subordinated debt securities (which may include medium-term notes,)
with varying terms, of which $1,853,000,000 remained unsold as of
December 31, 1993.
Liquidity is a characteristic of the Company's operations since the
majority of the assets consist of finance receivables. Principal cash
collections of finance receivables totaled $11,535,766,000 during 1993,
$9,415,231,000 during 1992 and $8,375,018,000 during 1991.
PAGE 4
CONSUMER LENDING
GENERAL
The Company's consumer lending services are provided by Transamerica
Financial Services, headquartered in Los Angeles, California, which has
561 branch lending offices. Branch offices are located in the United
States (548 in 41 states), Canada (11) and United Kingdom (2).
Transamerica Financial Services makes both real estate secured and
unsecured loans to individuals. The company's customers typically
borrow to consolidate debt, finance home remodeling, pay for their
children's college educations, make major purchases, take vacations,
and for other personal uses.
Transamerica Financial Services offers three principal loan products:
fixed rate real estate secured loans, revolving real estate secured
lines of credit and personal loans. The company's primary business is
making fixed rate, home equity loans that generally range up to
$200,000. Approximately 83% of the net finance receivables outstanding
at December 31, 1993 are secured by residential properties. Of
the Company's real estate portfolio, 50% is secured by first mortgages.
Since 1991, the company has continued to broaden its receivable
portfolio by expanding its revolving real estate secured lines of
credit, its unsecured personal loan business and its purchase of retail
finance contracts from dealers (i.e., appliances, furniture and
services).
When permitted by law, the consumer lending services offer to arrange
credit life and disability insurance in connection with consumer
instalment loans and generally require that property securing consumer
loans be insured. The consumer lending operation receives a fee if it
arranges such insurance. Credit life insurance satisfies the
obligation of the borrower in the event of death, while credit
disability insurance satisfies the borrower's obligation to pay
instalments during a period of disability. Property insurance insures
the collateral against damage or loss. Beginning in April 1991,
substantially all such insurance arranged for by the consumer lending
operation was underwritten by subsidiaries of the Company's commercial
lending operation.
Consumer Finance Receivables
The following tables set forth the volume of consumer finance
receivables acquired during the years indicated and the amount of
consumer finance receivables outstanding at the end of each such year:
VOLUME OF CONSUMER FINANCE RECEIVABLES ACQUIRED
Years Ended December 31,
-------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(dollar amounts in thousands)
Consumer instalment loans:
(1)(2)
Real estate secured(3) $1,039,39 $1,120,54 $1,308,94 $1,800,20 $1,283,53
4 9 1 4 8
65% 72% 81% 87% 86%
Other(4) 524,241 436,521 310,607 276,240 194,126
33% 28% 19% 13% 13%
--------- --------- --------- --------- ---------
1,563,635 1,557,070 1,619,548 2,076,444 1,477,664
98% 100% 100% 100% 99%
Other finance receivables(5) 29,181 4,843 5,310 5,773 7,694
2% 1%
--------- --------- --------- --------- ---------
Total $1,592,81 $1,561,91 $1,624,85 $2,082,21 $1,485,35
6 3 8 7 8
100% 100% 100% 100% 100%
========= ========= ========= ========= =========
- -----------------
(1)Includes balances refinanced.
(2)Includes $491,236,000 in 1990 related to the purchase of NOVA Financial
Services (NOVA) on July 17, 1990 (real estate secured -$458,650,000; other
instalment loans - $32,586,000).
(3)Includes only loans which at inception were at least 50% secured by
residential real estate and which had an original advance over $10,000
($6,000 prior to July 1, 1992). The 1993 and 1992 decreases were mainly due
to sluggishness in the domestic economy and a weak real estate market,
particularly in California.
(4)The increase in 1990 includes unsecured loans to executives and
professionals related to the purchase of NOVA. Increases since 1990
reflect general expansion in the company's program of non-real estate
secured loans.
PAGE 5
(5)The increase in 1993 resulted from expansion into the retail finance
contract business, purchasing principally contracts on appliances,
furniture and services. The amounts for 1989 through 1992 principally
represented automobiles leased to affiliated companies.
----------------------
CONSUMER FINANCE RECEIVABLES OUTSTANDING
As of December 31,
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(dollar amounts in thousands)
Consumer instalment loans:
Real Estate secured(1) $3,214,468 $3,267,479 $3,268,918 $2,962,674 $2,836,152
84% 87% 91% 91% 92%
Other(2) 595,284 482,819 334,304 291,248 229,218
15% 13% 9% 9% 8%
3,809,752 3,750,298 3,603,222 3,253,922 3,065,370
99% 100% 100% 100% 100%
Other finance receivables(3) 22,276 6,355 7,503 9,193 10,230
1%
3,832,028 3,756,653 3,610,725 3,263,115 3,075,600
100% 100% 100% 100% 100%
Less unearned finance charges
and insurance premiums 181,505 177,310 165,295 150,229 150,214
Total net finance receivables(4) $3,650,523 $3,579,343 $3,445,430 $3,112,886 $2,925,386
- ------------
(1) See footnote 3 on preceding table.
(2) See footnote 4 on preceding table.
(3) See footnote 5 on preceding table.
(4) Outstandings shown above excludes accounts in foreclosure and assets held for sale.
Earned finance charges as a percentage of the average amount of net
finance receivables outstanding during each of the years 1989 through
1993 were 18.3%, 18.2%, 18.0%, 17.9% and 17.5%.
A summary of consumer instalment loan activity for the years
indicated is as follows:
Years Ended December 31,
--------------------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Volume by source:
New borrowers 45.5% 46.0% 38.4% 32.8% 32.2%
Former borrowers 15.6 10.5 8.2 8.4 9.0
Renewals:
Balances refinanced 19.6 21.9 27.4 29.1 27.2
Additions to renewed
balances 19.3 21.6 26.0 29.7 31.6
------ ------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
Average size of loan made $11,561 $13,489 $16,756 $17,989 $18,582
including renewals
Outstanding at end of year:
Amount (in thousands) $3,809,752 $3,750,298 $3,603,222 $3,253,922 $3,065,370
Number 251,457 219,911 195,377 183,825 174,768
Average balance $ 15,151 $ 17,054 $ 18,442 $ 17,701 $ 17,540
PAGE 6
Delinquent Receivables
The following table shows the ratio of consumer finance receivables
which are contractually past due 60 days or more and 90 days or more to
finance receivables outstanding for each category and in total as of
the end of each of the years indicated:
As of December 31,
---------------------------------------------
1993 1992 1991 1990 1989
----- ----- ----- ----- -----
Consumer instalment loans:
Real estate secured:(1)
60 days and over 1.86% 1.84% 1.73% 1.49% 1.21%
90 days and over 1.20 1.10 0.94 0.81 0.62
Other consumer instalment loans:
60 days and over 2.71 2.00 2.19 2.09 2.70
90 days and over 2.22 0.26 1.49 1.49 2.05
----- ----- ----- ----- -----
Total consumer instalment loan
60 days and over 1.99 1.86 1.77 1.54 1.32
90 days and over 1.36 0.99 0.99 0.87 0.72
----- ----- ----- ----- -----
Other finance receivables:
60 days and over 3.96 0.09 0.14
90 days and over 2.30 0.05 0.07
----- ----- ----- ----- -----
Total finance receivables:(2)(3)
60 days and over 2.00% 1.86% 1.76% 1.54% 1.32%
90 days and over 1.36% 0.99% 0.99% 0.87% 0.72%
===== ===== ===== ===== =====
- ------------
(1) Includes only loans which at inception were at least 50% secured by residential
real estate and which had an original advance over $10,000 ($6,000 prior to July
1, 1992).
(2) The increasing delinquency through 1993 was principally due to the sluggishness
in the domestic economy and, in particular, the weakening in the California real
estate market.
(3) Delinquency statistics shown above exclude accounts in foreclosure and assets
held for sale.
Nonearning Receivables
Nonearning consumer finance receivables, which are defined as those
past due more than 29 days, amounted to $156,542,000 and $140,763,000
at December 31, 1993 and 1992. Payments received on nonearning
receivables are applied to principal and interest according to the terms
of the loan; however, accrued interest receivable and amortization of
other finance charges are recognized in income only on accounts past due
less than 30 days. During 1993, the gross amount of interest income that
would have been recorded on receivables classified as nonearning at year
end was $25,496,000 and the amount of interest on those loans that was
recognized in income was $15,234,000.
Accounts in Foreclosure and Assets Held for Sale
Generally, by the time an account secured by residential real estate
becomes past due 90 days, foreclosure proceedings have begun, at which
time the account is moved from finance receivables to other assets and
is written down to the estimated realizable value of the collateral if
less than the account balance. After foreclosure, repossessed assets
are carried at the lower of cost or fair value less estimated selling
costs and are reclassified to assets held for sale. Accounts in
foreclosure and repossessed assets held for sale totaled $214,665,000
at December 31, 1993 compared to $176,054,000 at December 31, 1992.
The increase primarily reflects increased repossessions in California
and longer disposal times due to its weak real estate market.
PAGE 7
Credit Loss Experience
Certain information regarding credit losses on finance receivables
for the consumer lending operation during the years indicated is set
forth in the following table:
Years Ended December 31,
-----------------------------------------------------
1993 1992 1991 1990 1989
----- ----- ----- ----- -----
(dollar amounts in thousands)
Provision for credit losses charged
to income $62,349 $47,985 $42,214 $35,617 $32,820
Credit losses (net of recoveries)(1) $60,653 $42,961 $32,986 $25,757 $25,214
Ratio to average net finance
receivables outstanding:
Consumer instalment loans:(2)
Real estate secured 1.35% 0.85% 0.78% 0.68% 0.74%
Other 3.43 4.25 3.12 2.22 2.68
----- ----- ----- ----- -----
Total consumer instalment
loans 1.67 1.22 1.00 0.80 0.91
Other finance receivables 0.35 0.11 0.25 (0.01) (0.13)
----- ----- ----- ----- -----
Total(2) 1.67% 1.22% 1.00% 0.79% 0.91%
===== ===== ===== ===== =====
Allowance for losses at end of
year(3)(4) $103,313 $101,195 $98,185 $88,535 $79,379
Ratio to net finance receivables
outstanding(5) 2.83% 2.83% 2.85% 2.85% 2.71%
- -------------
(1) Credit losses increased $17,692,000 (41%) in 1993 due to increased losses on real
estate secured instalment loans of $14,915,000 (56%) and on non-real estate secured
receivables of $2,777,000 (17%). Credit losses increased $9,975,000 (30%) in 1992
due to increased losses on real estate secured instalment loans of $3,221,000 (14%)
and on non-real estate secured receivables of $6,754,000 (70%). Credit losses
increased $7,229,000 (28%) in 1991 due to increased losses on real estate secured
instalment loans of $3,201,000 (16%) and on non-real estate secured receivables of
$4,028,000 (71%). The increases since 1990 in credit losses on real estate secured
loans resulted mainly from the continuing weakening of the California real estate
market. The 1993, 1992 and 1991 increases in credit losses on non-real estate
secured loans was caused by growth in the related outstandings and sluggishness in
the domestic economy. With the adoption in the fourth quarter of 1992 of a required
new accounting rule, losses on the disposal of repossessed assets were classified as
operating expenses rather than as credit losses. Data for periods prior to the
fourth quarter of 1992 have not been reclassified.
(2) In the case of real estate secured loans, includes only loans which at inception were
at least 50% secured by residential real estate and which had an original advance
over $10,000 ($6,000 prior to July 1, 1992). The changes in ratios were due to
corresponding fluctuations in credit losses (see note 1 above).
(3) In connection with the acquisition of NOVA in 1990, the company established an
allowance for losses of $13,138,000 as of the date of purchase.
(4) In connection with the nonrecourse sale of receivables described in Note M of Notes
to Financial Statements, Item 8, $13,842,000 was transferred to Transamerica
Financial Services Finance Co. in 1990.
(5) The allowance for losses as a percentage of receivables outstanding at
December 31, 1990 was increased in response to the economic uncertainties due to the
decline in the U.S. economy and the resulting slowdown in the residential housing
market.
PAGE 8
Offices and Employees
The number of offices and employees of the Company in connection with
its consumer lending operation as of the dates indicated were as
follows:
As of December 31,
-------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Offices 561 509 464 448 428
Employees 2,381 2,256 2,148 2,093 1,861
The following table sets forth the geographical distribution of the
Company's consumer lending offices at December 31, 1993:
No. of No. of
Offices Offices
------- -------
United States: United States:
Alabama 15 New Jersey 5
Arizona 20 New Mexico 6
California 174 New York 26
Colorado 9 North Carolina 12
Connecticut 2 Ohio 21
Delaware 2 Oklahoma 6
Florida 21 Oregon 10
Georgia 14 Pennsylvania 23
Hawaii 4 Rhode Island 1
Idaho 4 South Carolina 7
Illinois 29 Tennessee 7
Indiana 12 Texas 5
Iowa 6 Utah 4
Kansas 2 Virginia 10
Kentucky 8 Washington 22
Louisiana 8 Wisconsin 10
Maryland 9 Wyoming 1
Massachusetts 3 ---
Michigan 8
Minnesota 5 Canada 548
Mississippi 1 United Kingdom 11
Missouri 11 2
Nebraska 2 ---
Nevada 3
Total 561
===
Competition
The Company's consumer lending subsidiaries operate in a highly
competitive industry, in many cases competing with companies and
financial institutions with long established operating histories and
substantial financial resources.
Regulation
The Company's consumer lending operation is subject to various state
and federal laws. Depending upon the type of lending, these laws may
require licensing and certain disclosures and may limit the amounts,
terms and interest rates that may be offered.
PAGE 9
COMMERCIAL LENDING
General
The Company's commercial lending services are provided by
Transamerica Commercial Finance Corporation ("Transamerica Commercial
Finance"). Transamerica Commercial Finance operates from its executive
office in Chicago, Illinois, as well as from 72 branch lending offices.
Branch offices are located in the United States (47), Puerto Rico (15),
Canada (6) and Europe (4).
Transamerica Commercial Finance made a decision late in the fourth
quarter of 1991 to exit the rent-to-own finance business, reduce
lending to certain asset based lending lines, accelerate disposal of
repossessed assets and liquidate receivables remaining from previously
sold businesses. As a result of this action the commercial lending
operation recognized a special after tax charge of $130,000,000.
In conjunction with the decisions discussed above, Transamerica
Commercial Finance's operations were reorganized into two core business
units: inventory finance and business credit. The lending activities of
these core businesses are discussed below.
Inventory Finance
Inventory finance (also known as wholesale financing or floor plan
financing) consists principally of financing dealers' purchases from
distributors or manufacturers of goods for inventory. The products
financed primarily include boats and other recreational equipment,
television and stereo equipment, major appliances such as
refrigerators, washers, dryers and air conditioners, and manufactured
housing. Loan terms typically provide for repayment within 30 days
following sale of the inventory by the borrower. After initial review
of a borrower's credit worthiness, the ongoing management of credit
risk in this area may include various monitoring techniques, such as
periodic physical inventory checks and review of the borrower's sales,
as well as maintenance of repurchase agreements with manufacturers
which provides a degree of security in the event of slow moving or
obsolete inventory.
Business Credit
Business credit consists of secured loans, primarily revolving, to
manufacturers, distributors and selected service businesses, including
financial service companies. The loans are fully collateralized, with
credit lines typically from $5,000,000 to $25,000,000 and terms ranging
from three to five years. Actual borrowings are limited to specified
percentages of the borrower's inventory, receivables and other eligible
collateral which are regularly monitored to ascertain that outstandings
are within approved limits and that the borrower is otherwise in
compliance with the terms of the arrangement. The loans to financial
service companies are secured by their respective finance receivable
portfolios. The company manages its credit risk in this area by
monitoring the quality of the borrower's loan portfolio and compliance
with financial covenants.
Other
The "Other" category of receivables includes furniture and appliance
retail and finance operations in Puerto Rico and the liquidating
portfolios of businesses the company has exited. Transamerica
Commercial Finance also offers credit life and credit disability
insurance in connection with the financing activities of both the
consumer and commercial lending operations and to unrelated third party
lenders. The unrelated insurance accounted for substantially all of
the insurance subsidiaries' total premium volume in 1990, 64% in 1991,
45% in 1992 and 7% in 1993.
PAGE 10
Interest Rate Sensitivity
As a result of the relatively short-term nature of its financings,
Transamerica Commercial Finance is able to adjust its finance charges
rather quickly in response to competitive factors and changes in its
costs. However, the interest rates at which Transamerica Commercial
Finance borrows funds for its businesses generally move more quickly
than the rates at which it lends to customers. As a result, in rising
interest rate environments, margins are normally compressed until
interest rates restabilize. Conversely, in declining interest rate
environments, margins are generally enhanced.
Acquisitions and Divestitures
In March 1992, the commercial lending operation purchased for cash a
business credit portfolio consisting of twelve manufacturer/distributor
accounts with a net outstanding balance of $134,000,000. In September
1991, an inventory finance portfolio was purchased for cash, which
comprised lending arrangements with over 700 manufactured housing and
recreational product dealers with a net balance outstanding of
$290,604,000. These transactions were funded with short-term debt.
The commercial lending operation sold its automobile fleet leasing
operation in 1990 and its commercial leasing and wholesale automobile
financing operations in 1989. Finance receivables included in the
assets sold totaled $45,478,000 in 1990 and $534,734,000 in 1989. Also
in 1990, the insurance finance operations were dividended to TFG.
Commercial Finance Receivables
The following tables set forth the volume of commercial finance
receivables acquired during the years indicated and the amount of
commercial finance receivables outstanding at the end of each such
year:
VOLUME OF COMMERCIAL FINANCE RECEIVABLES ACQUIRED
Years Ended December 31,
---------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(dollar amounts in thousands)
Inventory $6,773,720 $6,225,899 $5,570,486 $6,029,587 $6,835,938
finance(1)
64% 72% 73% 64% 61%
Insurance 714,918 1,402,434
finance(2)
8% 12%
Business credit(3) 3,696,180 2,023,010 2,000,434 2,407,304 2,130,292
34% 23% 26% 26% 19%
----------- ----------- ----------- ----------- -----------
Core businesses 10,469,900 8,248,909 7,570,920 9,151,809 10,368,664
98% 95% 99% 98% 92%
Other(4) 170,705 427,909 84,139 194,338 907,468
2% 5% 1% 2% 8%
----------- ----------- ----------- ----------- -----------
Total $10,640,605 $8,676,818 $7,655,059 $9,346,147 $11,276,132
100% 100% 100% 100% 100%
=========== ========== ========== ========== ===========
Domestic $9,296,240 $7,177,063 $5,589,008 $6,852,181 $8,638,213
87% 83% 73% 73% 77%
Foreign(5) 1,344,365 1,499,755 2,066,051 2,493,966 2,637,919
13% 17% 27% 27% 23%
----------- ----------- ----------- ----------- -----------
Total $10,640,605 $8,676,818 $7,655,059 $9,346,147 $11,276,132
100% 100% 100% 100% 100%
=========== ========== ========== ========== ===========
- -------------
(1) The 1993 increase reflects the overall improvement in the economy and increased sales
and marketing programs in the core business groups. The 1992 increase is due to
improved economic conditions. The decreases in 1991 and 1990 reflected the overall
weak economy and decline in consumer spending which supports the businesses for which
the company provides inventory financing. Includes $290,604,000 in 1991 related to the
purchase of lending arrangements with manufactured housing and recreational product
dealers.
PAGE 11
(2) 1990 includes amounts through July 2, 1990, the date the insurance finance
subsidiaries were dividended to TFG.
(3) The 1993 increase reflects the overall improvement in the economy and increased sales
and marketing programs in the core business groups. The volume increase in 1993 also
reflects a shift in focue from participating in loans to directly originating loans.
As a result, advances and collections have increased. 1992 includes $134,000,000
related to the purchase of a portfolio of manufacturer/distributor business credit
arrangements. The 1991 decrease is primarily attributable to the worsened economic
conditions that began in 1990 and which particularly affected the company's working
capital loan program for Canadian personal computer retail dealers. The company made a
decision late in the fourth quarter of 1991 to reduce lending to that class of
customers as part of its effort to focus on its core businesses.
(4) The 1992 increase mainly reflects additional borrowings by customers in certain asset
based lending lines, which were reclassified to the "other" category in 1991 (see note
3 on table below), prior to implementation or completion of work-out or liquidation
arrangements. The 1993 decrease is due to reduced receivable levels in liquidating
portfolios. The declines in 1991 and 1990 were due to the sale of the automobile fleet
leasing operation in 1990 and the sale of the commercial leasing and wholesale
automobile financing operations in 1989.
(5) The decrease in 1992 resulted primarily from the company's decision late in the fourth
quarter of 1991 to reduce lending to Canadian personal computer retail dealers.
COMMERCIAL FINANCE RECEIVABLES OUTSTANDING
As of December 31,
-----------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
(dollar amounts in thousands)
Inventory finance(1) $1,959,757 $1,873,895 $1,928,670 $1,872,191 $2,240,453
74% 70% 71% 58% 52%
Insurance finance(2) 560,728
13%
Business credit(3)(4) 553,859 575,984 288,776 968,216 897,128
21% 22% 11% 30% 21%
----------- ----------- ----------- ----------- -----------
Core businesses 2,513,616 2,449,879 2,217,446 2,840,407 3,698,309
95% 92% 82% 88% 86%
Other(5) 127,687 208,866 481,272 403,647 613,152
5% 8% 18% 12% 14%
----------- ----------- ----------- ----------- -----------
2,641,303 2,658,745 2,698,718 3,244,054 4,311,461
100% 100% 100% 100% 100%
Less unearned finance
charges 40,856 55,212 67,737 87,075 146,006
----------- ----------- ----------- ----------- -----------
Total net finance
receivables(6) $2,600,447 $2,603,533 $2,630,981 $3,156,979 $4,165,455
========== ========== ========== ========== ==========
Domestic $2,247,851 $2,219,520 $2,095,642 $2,452,985 $3,372,280
86% 85% 80% 78% 81%
Foreign 352,596 384,013 535,339 703,994 793,175
14% 15% 20% 22% 19%
----------- ----------- ----------- ----------- -----------
Total net finance
receivables(6) $2,600,447 $2,603,533 $2,630,981 $3,156,979 $4,165,455
100% 100% 100% 100% 100%
========== ========== ========== ========== ==========
- ---------------
(1) The 1993 increase was due to the increased volume, primarily in home and recreational
products. The 1992 decrease was mainly due to faster paying customers resulting from
implementation of stronger portfolio management procedures and efforts by certain
borrowers to decrease the time they hold inventory by using "just in time" delivery
arrangements.
(2) On July 2, 1990, the insurance finance operations were dividended to TFG.
(3) The company's decision to exit the rent-to-own finance business and reduce lending to
certain asset based lending lines (formerly included in business credit) resulted in
the reclassification at December 31, 1991 of net rent-to-own finance receivables
totaling $221,247,000 to assets held for sale, and the transfer of other receivables
totaling $206,931,000 from business credit to the "other" category set forth under
finance receivables outstanding. Prior year data has not been restated.
(4) The 1992 increase includes the purchase of a $134,000,000 manufacturer/distributor
business credit portfolio. The 1991 decrease was due principally to the reduction in
rent-to-own finance receivables resulting from the de-emphasis during the year,
repossession of rent-to-own stores, and the eventual decision to exit the business and
the decision to reduce lending to certain asset based lending lines (see note 3 above
regarding reclassification of receivables outstanding at December 31, 1991). The 1990
increase was due to increased financing of small consumer finance companies and
domestic personal computer retail stores.
(5) The 1993 and 1992 decreases primarily reflect the liquidation of receivables from
businesses being exited, including $18,403,000 and $87,406,000 of write offs. The
1991 increase was due to the reclassification of receivables to be liquidated
resulting from the company's decision to reduce lending to certain asset based lending
lines (see notes 3 and 4 above). The 1990 decline was due to the liquidation and sale
of receivables from businesses being exited (see note 4 on preceding table).
(6) Outstandings shown above exclude assets held for sale (see discussion on page 13).
PAGE 12
Earned finance charges as a percentage of the average amount of net
finance receivables outstanding during each of the years 1989 through
1993 were 14.9%, 14.7%, 13.3%, 12.1% and 11.3%.
Delinquent Receivables
Effective in 1993, the policy used for determining delinquent
receivables was 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 receivables are now defined as
the instalment balance for inventory finance and business credit
receivables and the receivable balance for all other receivables over
60 days past due. Previously, delinquent receivables were generally
defined as financed inventory sold but unpaid 30 days or more, the
portion of business credit loans in excess of the approved lending
limit and all other receivable balances contractually past due 60 days
or more.
The following table shows the ratio of deliquent commercial finance
receivables to finance receivables outstanding for each category and in
total as of the end of each of the years indicated. Delinquency ratios
for 1992 and prior years have not been restated for the change in
policy outlined above.
As of December 31,
----------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ -----
Inventory finance(1) 0.13% 0.82% 1.31% 3.42% 2.95%
Insurance finance(2) 1.78
Business credit(1)(3) 0.21 0.88 10.34 2.35
------ ------ ------ ------ -----
Core businesses 0.10 0.68 1.25 5.78 2.63
Other(4) 19.14 22.42 25.84 12.79 9.54
------ ------ ------ ------ -----
Total(5) 1.02% 2.38% 5.64% 6.65% 3.61%
====== ====== ====== ====== ======
- ---------------
(1)The decreases in 1992 and 1991 reflect write offs of delinquent
accounts (and accounting reclassifications - see note 3 on
preceding table), implementation of stronger portfolio management
procedures and general improvement in the economy. Increased
delinquency in 1990 reflected the overall weak economy. This trend
began in 1989 when consumer spending, which supports these
businesses, began to decline. Particularly affected were the
marine industry (inventory finance), and the appliance and
furniture rental and Canadian computer markets (business credit).
(2)See note 2 on preceding table.
(3)The decline in 1991 was due principally to rent-to-own finance
receivables being reclassified to assets held for sale, and certain
finance receivables being reclassified to the "other" category.
These reclassifications resulted from the company's decision to
exit the rent-to-own finance business and reduce its lending to
certain asset based lending lines. Prior year data has not been
restated.
(4)Represents finance receivables retained from businesses sold or
exited which are being liquidated and receivables reclassified in
1991 due to the company's decision to reduce lending to certain
asset based lending lines (see note 3 on preceding table).
(5)Delinquency statistics exclude assets held for sale (see
discussion on page 13).
--------------------
Nonearning Receivables
Effective in 1993, the policy used for determining nonearning
receivables was 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. Nonearning receivables are now defined as
balances from borrowers that are over 90 days delinquent or at such
earlier time as full collectibility becomes doubtful. Previously,
nonearning receivables were defined as balances from borrowers in
bankruptcy or litigation and other accounts for which full
collectibility was doubtful. Accrual of finance charges is suspended
on nonearning receivables until such time as past due amounts are
collected.
Nonearning receivables were $31,763,000 (1.20% of receivables
outstanding) and $90,919,000 (3.42% of receivables outstanding) at
December 31, 1993 and 1992; the 1992 data has not been restated. Those
amounts exclude nonearning rent-to-own finance receivables which have
been reclassified to assets held for sale (see page 13). During 1993,
the gross amount of interest income that would have been recorded on
receivables classified as nonearning at year end was $4,649,000 and the
amount of interest on those loans that was recognized in income was
$2,423,000.
PAGE 13
Assets Held for Sale
Assets held for sale at December 31, 1993 totaled $90,114,000, net of
a $156,985,000 valuation allowance and consisted of rent-to-own finance
receivables of $120,469,000, repossessed rent-to-own stores of
$107,227,000 and other repossessed assets of $19,403,000. Assets held
for sale at December 31, 1992 totaled $191,515,000, net of a
$121,549,000 valuation allowance, and comprised rent-to-own finance
receivables of $179,013,000, repossessed rent-to-own stores of
$103,418,000 and other repossessed assets of $30,633,000. At December
31, 1993, $27,489,000 of the rent-to-own finance receivables were
classified as both delinquent and nonearning. At December 31, 1992,
delinquent rent-to-own finance receivables were $15,397,000 and
nonearning rent-to-own finance receivables were $32,615,000.
Delinquent and nonearning receivables as of December 31, 1992 have not
be restated for the change in policies effective in 1993 as outlined
above.
Credit Loss Experience
Certain information regarding credit losses on finance receivables
for the commercial lending operation during the years indicated is set
forth in the following table:
[CAPTION]
Years Ended December 31,
-----------------------------------------------------------
1993 1992 1991 1990 1989
------- ------- ------- ------- -------
(dollar amounts in thousands)
Provision for credit losses
charged to income(1) $31,793 $36,830 $245,190 $131,244 $51,078
Credit losses (net of
recoveries)(2) $42,710 $117,052 $172,614 $95,514 $69,917
Ratio to average net finance
receivables outstanding:
Inventory finance(3) 1.30% 1.56% 2.86% 2.64% 0.99%
Insurance finance(4) 0.71 0.22
Business credit(3) (0.02) 0.23 13.46 1.79 1.63
------- ------- ------- ------- -------
Core businesses 0.99 1.30 6.17 2.22 1.02
Other(5) 12.93 28.98 6.39 5.55 3.65
------- ------- ------- ------- -------
Total 1.64% 4.53% 6.19% 2.61% 1.55%
====== ====== ======= ====== ======
Allowance for losses at end
of year(1) $76,079 $87,169 $169,529 $99,402 $70,870
Ratio to outstandings less
unearned finance charges(6) 2.93% 3.35% 6.44% 3.15% 1.70%
====== ====== ======= ====== ======
- ----------------
(1) The 1991 provision and allowance for losses at December 31, 1991
included $62,816,000 taken as part of the special charge
recognized from the company's decision to reduce lending to
certain asset based lending lines and to liquidate receivables
remaining from previously sold businesses. The increased
provision in 1991, excluding the special charge, and in 1990 were
in response to increased credit losses and higher than normal
delinquencies and nonearning receivables associated with the weak
U.S. and Canadian economies.
(2) In 1993 and 1992, charges to the allowance for losses on finance
receivables due to credit losses sustained decreased $74,342,000
(64%) and $55,562,000 (32%). These decreases were caused mainly
by decreases in delinquent and nonearning receivables resulting
from improved economic conditions, the reclassification of certain
receivables to assets held for sale and in 1992, implementation of
stronger portfolio management procedures. In 1991 and 1990,
credit losses increased $77,100,000 (81%) and $25,597,000 (37%)
principally as a result of the depressed appliance and furniture
rental and Canadian computer markets associated with the general
downturn in the U.S. and Canadian economies.
(3) The changes in ratios were due to corresponding fluctuations in
credit losses (see note 2 above).
(4) See note 2 on page 11.
(5) The increase in 1992 resulted mainly from the write-off of
delinquent and nonearning receivables that were reclassified to
the "other" category in 1991.
(6) The 1993 and 1992 reductions in the allowance for losses as a
percentage of receivables outstanding primarily was attributable
to the write off of delinquent and nonearning receivables in 1993
and 1992 and lower levels of delinquent and nonearning accounts in
the remaining portfolio at December 31, 1993 and 1992. In 1991,
the percentage was increased principally due to the company's
decision to reduce lending to certain asset based lending lines
and to liquidate receivables remaining from previously sold
businesses (see note 1 above). The 1990 increase was in response
to the weak U.S. and Canadian economies resulting in higher than
normal delinquencies and nonearning receivables.
PAGE 14
Offices and Employees
The number of offices and employees of the Company in connection with
its commercial lending operation as of the dates indicated were as
follows:
As of December 31,
---------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Offices 72 108 130 152 231
Employees 1,899 1,993 2,114 2,292 3,011
The following table sets forth the geographical distribution of the
Company's commercial lending offices at December 31, 1993:
No. of No. of
Offices Offices
------- -------
United States: United States:
Alabama 1 South Dakota 1
California 3 Tennessee 2
Colorado 1 Texas 4
Florida 1 Virginia 1
Georgia 2 Wisconsin 2
Hawaii 1 ---
Illinois 10 47
Indiana 1 ---
Iowa 1 Puerto Rico 15
Kansas 1 ---
Minnesota 2 Canada:
Mississippi 1 Alberta 1
Missouri 1 British Columbia 1
New Hampshire 1 Ontario 3
New Jersey 2 Quebec 1
New York 3 ---
North Carolina 2 6
Ohio 1 ---
Oregon 1 Europe:
Pennsylvania 1 France 1
Netherlands 1
United Kingdom 2
---
4
---
Total 7
2
===
Competition
The Company's commercial lending subsidiaries operate in a highly
competitive industry, in many cases competing with companies with long
established operating histories and substantial financial resources.
Regulation
The Company's commercial lending operation is subject to various state
and federal laws. Depending upon the type of lending, these laws may
require licensing and certain disclosures and may limit the amounts,
terms and interest rates that may be offered.
PAGE 15
LEASING OPERATION
General
Transamerica Leasing Inc. ("Transamerica Leasing") leases, services and
manages containers, chassis and trailers around the world. The company
is based in Purchase, New York and maintains 386 offices, depots and
other facilities in 44 countries. The company specializes in intermodal
transportation equipment, which allows goods to travel by road, rail or
ship. The company's customers include railroads, steamship lines and
motor carriers.
At December 31, 1993, Transamerica Leasing's fleet consisted of
standard containers, refrigerated containers, domestic containers, tank
containers and chassis totaling 316,000 units which are owned or
managed, and leased from 347 depots worldwide, 36,500 rail trailers
leased to all major United States railroads and to roll on/roll off
steamship operators, shippers, shippers' agents and regional truckers,
and 3,800 over-the-road trailers in Europe. Transamerica Leasing began
leasing tank containers for carrying bulk liquids in 1990 and had 1,900
tank containers in its fleet at December 31, 1993.
In November 1992, the company sold its domestic over-the-road trailer
business. Proceeds from the sale totaled $191,000,000 and resulted in
no gain or loss.
Approximately 49% of the standard container, refrigerated container,
domestic container, tank container and chassis fleet is on term lease or
service contract minimum lease for periods of one to five years. Also,
34% of the rail trailer fleet is on term lease or service contract
minimum lease for periods of one to five years.
The following table sets forth Transamerica Leasing's fleet size in
units as of the end of each of the years indicated:
As of December 31,
---------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Containers and 316,000 280,000 255,100 244,400 235,900
chassis
Rail trailers 36,500 34,400 36,800 40,500 43,300
European trailers 3,800 2,900 1,700 800
The following table sets forth Transamerica Leasing's fleet utilization
for the years indicated:
Years Ended December 31,
--------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Containers and chassis 83% 85% 89% 90% 93%
Rail trailers 91% 84% 75% 79% 83%
European trailers 89% 84% 83% 81%
The 1993 container and chassis utilization decline was due to slow
economic growth in key European economies and Japan; the 1992 decline
was due to higher than expected industry-wide supply of equipment. The
1991 and 1990 reductions resulted from a small decline in the rate of
growth of world trade and a less favorable geographic balance of
business. The rail trailer utilization increased in 1993 and 1992 due
to a smaller industry fleet, higher domestic economic activity and
because many shippers are moving from trucks to rail transport for long-
haul shipments; the 1991 and 1990 declines were due to reduced domestic
economic activity.
Revenues of the domestic leasing operation derived from foreign
customers were $210,301,000 in 1993, $176,172,000 in 1992 and
$137,127,000 in 1991, of which European customers accounted for 41%, 42%
and 40%. Revenues of foreign-domiciled leasing operations were less
than 10% of the consolidated total in each of the three years in the
period ended December 31, 1993.
PAGE 16
Offices and Employees
The number of offices, depots and other facilities, and employees of
the Company in connection with its leasing operation as of the dates
indicated were as follows:
As of December 31,
------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Offices, depots and
other facilities 386 386 301 306 322
Employees 765 796 946 1,026 1,055
Competition
Transamerica Leasing operates in a highly competitive industry, in many
cases competing with companies with long established operating histories
and substantial financial resources.
Subsequent Event
On March 15, 1994, the Company completed the purchase of substantially
all of the assets of the container rental division of Tiphook plc for
approximately $1,100,000,000 in cash.
BORROWING OPERATIONS
Funds employed in the Company's operations are obtained from invested
capital, retained earnings and the sale of short and long-term debt.
Capitalization of the Company as of the dates indicated was as follows:
As of December 31,
------------------------------------------------------
1993 1992 1991 1990 1989
----- ----- ----- ----- -----
(dollar amounts in thousands)
Debt:
Unsubordinated debt:
Commercial paper and
other short-term debt $1,164,893 $14,766 $14,079
14%
Long-term notes and 5,170,485 $6,032,531 $5,920,108 5,535,239 5,952,933
debentures
61% 75% 75% 73% 73%
---------- ---------- ---------- ---------- ----------
6,335,378 6,032,531 5,920,108 5,550,005 5,967,012
75% 75% 75% 73% 73%
Subordinated debt 696,125 557,045 627,698 687,092 673,880
8% 7% 8% 9% 8%
---------- ---------- ---------- ---------- ----------
Total debt 7,031,503 6,589,576 6,547,806 6,237,097 6,640,892
83% 82% 83% 82% 81%
Total equity 1,449,621 1,428,936 1,360,051 1,382,872 1,493,056
17% 18% 17% 18% 19%
---------- ---------- ---------- ---------- ----------
Total $8,481,124 $8,018,512 $7,907,857 $7,619,969 $8,133,948
100% 100% 100% 100% 100%
========== ========== ========== ========== ==========
Short-term borrowings before reclassification to long-term debt (see
Note G of Notes to Financial Statements, Item 8) 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, at prevailing rates for major finance
companies. Bank loans are an additional source of short-term
borrowings. At December 31, 1993, $721,814,000 of bank credit lines were
available to the Company, $75,000,000 of which were also available to
Transamerica Corporation. At December 31, 1993, all borrowings under
these lines were made by the Company and amounted to $240,927,000. The
cost of short-term borrowings is directly related to prevailing rates of
interest in the money market; such rates are subject to fluctuation.
PAGE 17
Interest rates on borrowings during the years indicated were as
follows:
Years Ended December 31,
-----------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Weighted average annual
interest rate during
year:(1)
Short-term borrowings 3.41% 3.93% 6.47% 8.23% 9.26%
Long-term borrowings 8.24% 8.71% 9.77% 9.23% 9.69%
Total borrowings 6.00% 6.87% 8.28% 9.22% 9.68%
(1) Excludes the cost of maintaining credit lines and the effect of
interest rates on borrowings denominated in foreign currencies.
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,
----------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Return on assets(1) 1.1% 1.9% (1.2)% 1.4% 2.1%
Return on equity(2) 6.9% 11.7% (7.6)% 8.2% 12.3%
Dividend payout ratio(3) 75.2% 55.7% N.A. 136.3% 64.8%
Equity to assets ratio(4) 16.2% 16.2% 16.2 % 16.7% 16.8%
(1) Net income divided by simple average total assets.
(2) Net income divided by simple average equity.
(3) Cash dividends declared (excluding cash dividends in connection
with corporate restructuring in 1990) divided by net income.
(4) Simple average equity divided by simple average total assets.
Ratio of Earnings to Fixed Charges
The following table sets forth the consolidated ratios of earnings to
fixed charges for the years indicated. The ratios are computed by
dividing income from continuing operations before income taxes,
extraordinary loss on early extinguishment of debt and cumulative effect
of change in accounting, and before fixed charges, by the fixed charges.
Fixed charges consist of interest and debt expense, and one-third of
rent expense (which approximates the interest factor).
Years Ended December 31,
--------------------------------------------
1993 1992 1991 1990 1989
Ratio of earnings 1.50 1.59 0.77 1.28 1.42
to fixed charges
Excluding the effect of the previously discussed special charge
($130,000,000 after tax) reported by the commercial lending operation,
the ratio of earnings to fixed charges would have been 1.14 for 1991.
ITEM 2. PROPERTIES
Transamerica Finance Corporation leases its principal executive offices
at 1150 South Olive Street, Los Angeles, California, from an affiliated
company under a lease expiring in November 1994 at an annual rental of
approximately $2,000,000. The Company and its subsidiaries have
noncancelable lease agreements expiring mainly through 1998. These
agreements are principally operating leases for facilities used in the
Company's operations.
PAGE 18
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 laws and miscellaneous other causes of action arising in the
course of their businesses. Some of these proceedings involve claims
for punitive or treble damages in addition to other specific relief.
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 considered material
in relation to the consolidated financial position of the Company and
its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted in accordance with General Instruction J.
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 Finance Group, Inc., which is
wholly owned by Transamerica Corporation.
ITEM 6. SELECTED FINANCIAL DATA
Omitted in accordance with General Instruction J.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Omitted in accordance with General Instruction J. See "Management's
Discussion and Analysis of the Results of Operations" following the
Notes to Financial Statements (Item 8).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted in accordance with General Instruction J.
ITEM 11. EXECUTIVE COMPENSATION
Omitted in accordance with General Instruction J.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted in accordance with General Instruction J.
PAGE 19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted in accordance with General Instruction J.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) (1) and (2) The response to this portion of Item 14 is submitted
as a separate section of this report.
(3) List of Exhibits:
EX-2 Assets Purchase Agreement dated as of February 13, 1994 between
Transamerica Container Acquisition Corporation and Tiphook plc and
certain of its affiliated companies.
EX-2.1 Amendment and Supplement to Asset Purchase Agreement dated as of
March 15, 1994 between Transamerica Container Acquisition Corporation
and the Container Rental Division of Tiphook plc.
EX-3(i).1 Transamerica Finance Corporation Restated Certificate of
Incorporation as filed with the Secretary of State of Delaware on
December 12, 1988 (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).
EX-3(i).2 Transamerica Finance Corporation Certificate of Amendment of
Certificate of Incorporation as filed with the Secretary of State
of Delaware on February 19, 1991 (incorporated by reference to
Exhibit 3.1a to Registrant's Form 10-K Annual Report (File No. 1-
6798) for the year ended December 31, 1990).
EX-3(ii) Transamerica Finance Corporation By-Laws, as amended, last
amendment - December 12, 1988 (incorporated by reference to
Exhibit 3.2 to Registrant's Form 10-K Annual Report (File No. 1-
6798) for the year ended December 31, 1988).
EX 4 Indenture dated as of November 1, 1987 between Registrant
and Harris Trust and Savings Bank, as Trustee (incorporated by
reference to Exhibit 4.2 to Registrant's Form 10-K Annual Report
(File No. 1-6798) for the year ended December 31, 1988).
EX-10.1 Lease dated October 31, 1984 between Transamerica Occidental
Life Insurance Company, as lessor, and Registrant, as lessee, and
Addendums thereto dated November 14, 1984 and November 7, 1989
(incorporated by reference to Exhibit 10.1 to Registrant's Form
10-K Annual Report (File No. 1-6798) for the year ended December
31, 1989).
EX-10.2 Loan Sales Agreement dated as of November 1, 1990 between
Transamerica Financial Services and Transamerica Financial
Services Finance Co. (incorporated by reference to Exhibit 10.2
to Registrant's Form 10-K Annual Report (File No. 1-6798) for the
year ended December 31, 1990).
EX-10.3.a Corporate Separateness Agreement dated as of December 17,
1990 between Transamerica Financial Services and Transamerica
Financial Services Finance Co. (incorporated by reference to
Exhibit 10.3.a to Registrant's Form 10-K Annual Report (File No.
1-6798) for the year ended December 31, 1990).
EX-10.3.b Corporate Separateness Agreement dated as of December 17,
1990 between Transamerica Finance Group, Inc. [subsequently
renamed Transamerica Finance Corporation] and Transamerica
Financial Services Finance Co. (incorporated by reference to
Exhibit 10.3.b. to Registrant's Form 10-K Annual Report (File No.
1-6798) for the year ended December 31, 1990).
PAGE 20
EX-10.4 Pooling and Servicing Agreement dated as of November 1, 1990
among Transamerica Financial Services, as servicer, Transamerica
Financial Services Finance Co., as seller, and The First National
Bank of Chicago, as Trustee (incorporated by reference to Exhibit
2 to Form 8-A Registration Statement re: TFG Home Loan Trust 1990-
1 dated March 26, 1991 - Registration No. 33-36431-01).
EX-10.5 Investment Agreement dated December 17, 1990 among
Transamerica Finance Group, Inc. [subsequently renamed
Transamerica Finance Corporation], Transamerica Financial
Services Finance Co., as seller, and The First National Bank of
Chicago, as Trustee (incorporated by reference to Exhibit 2 to
Form 8-A Registration Statement re: TFG Home Loan Trust 1990-1
dated March 26, 1991 - Registration No. 33-36431-01).
EX-10.6 Guaranty dated July 31, 1990 by Transamerica Finance Group,
Inc. [subsequently renamed Transamerica Finance Corporation], in
favor of Corporate Asset Funding Company, Inc. et. al. re:
certain obligations of Transamerica Insurance Finance
Corporation, California (incorporated by reference to Exhibit
10.6 to Registrant's Form 10-K Annual Report (File No. 1-6798)
for the year ended December 31, 1990).
EX-10.7 Guaranty dated July 31, 1990 by Transamerica Finance Group,
Inc. [subsequently renamed Transamerica Finance Corporation], in
favor of Corporate Asset Funding Company, Inc. et. al. re:
certain obligations of Transamerica Insurance Finance Corporation
(incorporated by reference to Exhibit 10.7 to Registrant's Form
10-K Annual Report (File No. 1-6798) for the year ended December
31, 1990).
EX-12 Computation of Ratio of Earnings to Fixed Charges.
EX-23 Consent of Ernst & Young to the incorporation by reference of
their report dated February 16, 1994 in the Registrant's
Registration Statements on Form S-3, File Nos. 33-40236 and 33-
49763.
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 Commission upon
request.
(b) Reports on Form 8-K filed in the fourth quarter of 1993:
A report on Form 8-K was filed on November 19, 1993 relating to the
proposed acquisition by the Registrant or one of its subsidiaries
of Tiphook plc, a London-based container, trailer, and rail
equipment lessor.
(c) Exhibits:
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules:
The response to this portion of Item 14 is submitted as a separate
section of this report.
PAGE 21
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
(Registrant)
By RAYMOND A. GOLAN
(Raymond A. Golan,
Vice President and Controller)
Date: March 15, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 15, 1994.
Signature Title
Principal Executive Officer and Director:
RICHARD H. FINN Chief Executive Officer and Director
- ----------------------------
(Richard H. Finn)
Principal Financial Officer and Director:
Senior Vice President, Treasurer and
DAVID H. HAWKINS Director
- ----------------------------
(David H. Hawkins)
Principal Accounting Officer:
RAYMOND A. GOLAN
- ----------------------------
(Raymond A. Golan) Vice President and Controller
Directors:
- ----------------------------
(David R. Carpenter) Director
KENT L. COLWELL
- ----------------------------
(Kent L. Colwell) Director
EDGAR H. GRUBB
- ----------------------------
(Edgar H. Grubb) Director
FRANK C. HERRINGER
- ----------------------------
(Frank C. Herringer) Director
ROBERT R. LINDBERG
- ----------------------------
(Robert R. Lindberg) Director
ALLEN C. MIECH
- ----------------------------
(Allen C. Miech) Director
CHARLES E. TINGLEY
- ----------------------------
(Charles E. Tingley) Director
PAGE 22
(THIS PAGE INTENTIONALLY LEFT BLANK)
PAGE 23
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
Year Ended December 31, 1993
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
LOS ANGELES, CALIFORNIA
PAGE 24
(THIS PAGE INTENTIONALLY LEFT BLANK)
PAGE 25
FORM 10-K - ITEM 8, ITEM 14(a)(1) and (2)
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements of Transamerica Finance
Corporation and subsidiaries, together with the report of the
independent auditors, are included in Item 8:
Report of Independent Auditors
Consolidated Balance Sheet -- December 31, 1993 and 1992
Consolidated Statement of Operations -- Years ended December 31,
1993, 1992 and 1991
Consolidated Statement of Cash Flows -- Years ended December 31,
1993, 1992 and 1991
Consolidated Statement of Shareholder's Equity -- Years ended
December 31, 1993, 1992 and 1991
Notes to Financial Statements
Management's Discussion and Analysis of the Results of Operations
-- Year ended December 31, 1993
Supplementary Financial Information -- Years ended December 31,
1993 and 1992
The following consolidated financial statement schedules of
Transamerica Finance Corporation and subsidiaries are included in
Item 14(d):
VIII - Valuation and Qualifying Accounts -- Years ended December
31, 1993, 1992 and 1991
IX - Short-Term Borrowings -- Years ended December 31, 1993,
1992 and 1991
X - Supplementary Income Statement Information -- Years ended
December 31, 1993, 1992 and 1991
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
PAGE 26
REPORT OF INDEPENDENT AUDITORS
Shareholder and
Board of Directors
Transamerica Finance Corporation
We have audited the accompanying consolidated balance sheet of
Transamerica Finance Corporation and subsidiaries as of December 31,
1993 and 1992, and the related consolidated statements of operations,
cash flows, and shareholder's equity for each of the three years in
the period ended December 31, 1993. Our audits also included the
financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Transamerica Finance Corporation and subsidiaries at
December 31, 1993 and 1992, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
As discussed in Note J to the consolidated financial statements,
effective January 1, 1991 the Company adopted Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions.
ERNST & YOUNG
Los Angeles, California
February 16, 1994, except for Note N, as to which the date
is March 15, 1994
PAGE 27
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except for share data)
December 31 1993 1992
---------- -----------
ASSETS
Cash and cash equivalents $ $29,321 $ 60,495
Investments 110,078 97,702
Finance receivables, net of unearned finance
charges and insurance premiums:
Consumer lending 3,650,523 3,579,343
Commercial lending 2,600,447 2,603,533
---------- ----------
Net finance receivables 6,250,970 6,182,876
Less allowance for losses 179,392 188,364
---------- ----------
6,071,578 5,994,512
Property and equipment - less accumulated
depreciation of $605,548 in 1993 and
$570,015 in 1992:
Land, buildings and equipment 43,784 41,326
Equipment held for lease 1,306,458 1,062,116
Investments in and advances to affiliates 371,012 290,240
Goodwill, less accumulated amortization of
$98,252 in 1993 and $88,102 in 1992 372,368 384,598
Assets held for sale 386,300 405,256
Less valuation allowance 159,532 123,755
---------- ----------
226,768 281,501
Other assets 500,003 476,404
---------- ----------
$9,031,370 $8,688,894
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Debt:
Unsubordinated $6,335,378 $6,032,531
Subordinated 696,125 557,045
---------- ----------
Total debt 7,031,503 6,589,576
Accounts payable and other liabilities 483,939 585,328
Income taxes payable, of which $168,132 in
1993 and $140,489 in 1992 is deferred 66,307 85,054
Shareholder'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, 14,643 14,643
1,464,285 shares
Additional paid-in capital 1,356,533 1,352,618
Retained earnings 87,105 62,308
Net unrealized gain on marketable equity
securities 54
Foreign currency translation adjustments (8,660) (687)
---------- ----------
Total shareholder's equity 1,449,621 1,428,936
---------- ----------
$9,031,370 $8,688,894
========== ==========
See notes to financial statements.
PAGE 28
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands)
Years Ended December 31 1993 1992 1991
--------- --------- ---------
REVENUES
Finance charges $ 929,464 $ 946,687 $ 963,186
Leasing revenues 388,327 402,230 381,375
Servicing fees 942 1,795 3,203
Income from affiliates 18,021 21,248 29,524
Other 55,372 58,923 25,129
Total revenues 1,392,126 1,430,883 1,402,417
---------- ---------- ----------
EXPENSES
Interest and debt expense 414,556 459,518 514,230
Depreciation on equipment held for lease 102,538 98,789 91,138
Salaries and other operating expenses 512,652 504,037 492,019
Provision for losses on receivables 94,142 84,815 287,404
Provision for losses on assets held for sale 50,000 141,225
---------- ---------- ----------
Total expenses 1,173,888 1,147,159 1,526,016
---------- ---------- ----------
Income (loss) before income taxes,
extraordinary item and cumulative effect
of accounting change 218,238 283,724 (123,599)
Income taxes (benefit) 95,357 121,052 (30,088)
---------- ---------- ----------
Income (loss) before extraordinary item and
cumulative effect of accounting change 122,881 162,672 (93,511)
Extraordinary loss on early extinguishment
of debt, net of applicable income tax
benefit of $11,447 (23,084)
Cumulative effect of change in accounting
for post employment benefits other than (10,875)
pensions, net of applicable income tax
benefit of $5,602
---------- ---------- ----------
Net income (loss) $ 99,797 $ 162,672 $(104,386)
========== ========== ==========
See notes to financial statements.
PAGE 29
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Years Ended December 31 1993 1992 1991
----------- ----------- -----------
OPERATING ACTIVITIES
Net income (loss) $99,797 $162,672 $ (104,386)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization of goodwill 126,513 124,680 117,536
Provision for losses on receivables 94,142 84,815 287,404
Provision for losses on assets held for sale 50,000 141,225
Amortization of discount on long-term debt 30,419 49,681 51,317
Change in accounts payable and other (88,175)
liabilities (75,151) 20,292
Change in income taxes payable (18,747) 48,143 (52,721)
Extraordinary loss on early extinguishment
of debt 23,084
Cumulative effect of change in accounting for
post employment benefits other than pensions 10,875
Other 138,676 (139,953) (84,218)
----------- ----------- -----------
Net cash provided by operating activities 468,733 350,330 278,857
----------- ----------- -----------
INVESTING ACTIVITIES
Finance receivables originated or purchased (11,756,552) (9,714,701) (8,634,075)
Finance receivables collected or sold 11,535,766 9,415,231 8,375,018
Purchase of property and equipment (424,187) (349,305) (211,297)
Sales of property and equipment 55,760 44,708 25,589
Purchase of investments (35,953) (28,713) (116,329)
Sales or maturities of investments 23,523 25,766 131,253
Decrease (increase) in investments in and
advances to affiliates (80,772) 19,847 (77,768)
Sale of domestic over-the-road trailer business 191,000
Other (109,831) (1,238) 221
----------- ----------- ----------
Net cash used by investing activities (792,246) (397,405) (507,388)
----------- ----------- ----------
FINANCING ACTIVITIES
Proceeds from debt financing 5,500,571 4,100,077 4,494,435
Payments of debt (5,112,147) (4,107,988) (4,235,043)
Capital contributions from parent company 3,915 103,955 5,251
Cash dividends paid (100,000) (74,600) (18,150)
----------- ----------- ----------
Net cash provided by financing activities 292,339 21,444 246,493
----------- ----------- ----------
Increase (decrease) in cash and cash (31,174) (25,631) 17,962
equivalents
Cash and cash equivalents at beginning of year 60,495 86,126 68,164
----------- ----------- ----------
Cash and cash equivalents at end of year $ 29,321 $ 60,495 $ 86,126
=========== =========== ==========
See notes to financial statements.
PAGE 30
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(in thousands)
Net
Unrealized
Gain (Loss)
on Foreign
Additional Retained Marketable Currency
Capital Paid- Earnings Equity Translation
Stock In Capital (Deficit) Securities Adjustments
--------- ----------- --------- ----------- -----------
Balance at January 1, 1991 $ 14,643 $1,264,862 $ 94,622 $ 11 $ 8,734
Net loss (104,386)
Capital contribution from
parent company 105,251
Cash dividends declared. (21,450)
Other changes 417 (2,653)
--------- ---------- ---------- ---------- ----------
Balance at December 31, 1991 14,643 1,348,663 (9,764) 428 6,081
Net income 162,672
Capital contribution from
parent company 3,955
Cash dividends declared (90,600)
Other changes (374) (6,768)
Balance at December 31, 1992 14,643 1,352,618 62,308 54 (687)
Net income 99,797
Capital contribution from
parent company 3,915
Cash dividends declared (75,000)
Other changes (54) (7,973)
--------- ---------- ---------- ---------- ----------
Balance at December 31, 1993 $ 14,643 $1,356,533 $ 87,105 $ $ (8,660)
======== ========== ======== ========= =========
See notes to financial statements.
PAGE 31
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(dollar amounts in thousands)
Note A - Significant Accounting Policies
Transamerica Finance Corporation (together with its consolidated
subsidiaries, the "Company") is principally engaged in consumer
lending, commercial lending and leasing operations. The Company is a
wholly owned subsidiary of Transamerica Finance Group, Inc., which is
a wholly owned subsidiary of Transamerica Corporation.
Certain amounts for prior years have been reclassified to conform
with the 1993 presentation.
The significant accounting policies followed by the Company and its
subsidiaries are:
Consolidation - The consolidated financial statements include the
accounts of Transamerica Finance Corporation and all its majority
owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation. The Company's
nonvoting preferred stock ownership interest in the distributable
earnings of Transamerica Financial Services Finance Co. ("TFSFC"),
which is the Company's only significant non-majority owned investee,
is accounted for by the equity method after elimination of
intercompany transactions (see Note M.)
Cash and Cash Equivalents - Cash and cash equivalents include all
highly liquid investments with original maturities of three months or
less except for such securities held by the Company's credit
insurance subsidiaries which are included in investments.
Depreciation and Amortization - Property and equipment, which are
stated on the basis of cost, are depreciated by use of the straight-
line method over their estimated useful lives, which range from eight
to 15 years (with residual values of 10% to 20%) for equipment held
for lease, three to 10 years for administrative and service
equipment, and 20 years for buildings. Other intangible assets,
principally renewal, referral and other rights incident to businesses
acquired, are amortized over estimated future benefit periods ranging
from five to 25 years in proportion to estimated revenues. Goodwill
is amortized over 40 years.
Foreign Currency Translation - The net assets and operations of
foreign subsidiaries included in the consolidated financial
statements are attributable 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 effect of changes in
exchange rates in translating foreign subsidiaries' financial
statements is accumulated in a separate component of shareholder's
equity. The effect of transaction gains and losses on the
Consolidated Statement of Operations is insignificant for all years
presented.
Transactions with Affiliates - In the normal course of operations,
the Company has various transactions with Transamerica Corporation
and certain of its other subsidiaries. In addition to the filing of
consolidated income tax returns and the transactions discussed in
Notes J and M, these transactions include computer and other
specialized services, various types of insurance coverage and pension
administration, the effects of which are insignificant for all years
presented.
PAGE 32
Finance Charges - Finance charges, including loan origination fees,
offset by direct loan origination costs, are generally recognized as
earned on an accrual basis under an effective yield method, except
that accrual of finance charges is suspended on accounts that become
past due in excess of 29 days in the case of consumer loans or 60
days for commercial loans. At December 31, 1993 and 1992, finance
receivables for which the accrual of finance charges was suspended
approximated $188,300 and $231,700. Charges collected in advance,
including renewal charges, on inventory finance receivables are taken
into income on a straight-line basis over the periods to which the
charges relate.
Allowance for Losses - The allowance for losses is maintained in an
amount 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, 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. When foreclosure
proceedings are begun in the case of a real estate secured consumer
loan, the account is written down to the estimated realizable value
of the collateral if less than the account balance. After
foreclosure, repossessed assets are carried at the lower cost or fair
value less estimated selling costs and are reclassified to assets
held for sale. Additionally, accounts are generally charged against
the allowance when no payment has been received for six months for
consumer lending and when all avenues for repayment have been
exhausted for commercial lending.
Leasing Revenues - Leasing revenues include income from operating,
finance and sales-type leases. Operating lease income is recognized
on the straight-line method over the lease term. Finance lease
income, represented by the excess of the total lease receivable
(reduced by the amount attributable to contract maintenance) over the
net cost of the related equipment, is deferred and amortized over the
noncancelable term of the lease using an accelerated method which
provides a level rate of return on the outstanding lease contract
receivable. Dealer profit on sales-type leases, represented by the
excess of the total fair market value of the equipment over its cost
or carrying value, is recognized at the inception of the lease.
Unearned income is amortized over the term of the lease in the same
manner described above. Contract maintenance revenues are credited to
income on a straight-line basis over the term of the related leases.
Income Taxes - Taxable results of the Company's operations are
included in the consolidated federal and certain state income tax
returns filed by Transamerica Corporation, which by the terms of a
tax sharing agreement generally requires the Company to accrue and
settle income tax obligations as if it filed separate returns with
the applicable taxing authorities. The Company provides deferred
income taxes based on enacted rates in effect on the dates temporary
differences between the book and tax bases of assets and liabilities
reverse. In 1988, the Company adopted the liability method of
accounting for income taxes and the adoption of Financial Accounting
Standard No. 109, Accounting for Income Taxes, in 1992 had no effect
on the financial statements.
New Accounting Standards - In May 1993, the Financial Accounting
Standards Board issued a new standard on accounting for impairment of
loans which the Company must adopt by the first quarter of 1995. The
new standard requires that impaired loans be measured based on either
the fair value of the loan, if discernible, the present value of
expected cash flows discounted at the loan's effective interest rate
or the fair value of the collateral if the loan is collateral
dependent. When adopted, the new standard is not expected to have a
material effect on the consolidated financial statements of the
Company.
Also in May 1993, the Financial Accounting Standards Board issued a
new standard on accounting for certain investments in debt and equity
securities which the Company will adopt in the first quarter of 1994.
Under the new standard the Company will report at fair value its
investments in debt securities for which the Company does not have
the positive intent and ability to hold to maturity. Unrealized
gains and losses will be reported on an after tax basis in a separate
component of shareholder's equity.
PAGE 33
When adopted, the new standard is not expected to have a material
effect on the consolidated financial statements of the Company.
Note B - Investments
Investments are summarized as:
1993 1992
---- ----
Fixed maturities, at amortized cost (market
value: $103,035 $ 92,004
$111,621 in 1993 and $97,903 in1992)
Equity securities, at market value 765
(cost: $683 in 1992)
Short-term investments 7,043 4,933
-------- --------
Total $110,078 $ 97,702
Investments totaling $4,175 at December 31, 1993 and 1992 were on
deposit with various states to meet requirements of state insurance
and financial codes. In addition, various state insurance codes
require that the Company's credit insurance subsidiaries hold an
amount equal to their statutory unearned premium reserve ($36,069 and
$42,442 at December 31, 1993 and 1992) as cash or in suitable
investments for the protection of policyholders. Such assets are not
available for distribution until all liabilities on insurance
policies have been discharged.
There were no unrealized gains or losses on marketable equity
securities at December 31, 1993.
Note C - Concentration of Risk
During the normal conduct of its operations, the Company engages in
the extension of credit to homeowners, electronics and appliance
dealers, retail recreational product and computer stores, appliance
and furniture rental operations and others. The risk associated with
that 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 Company's finance receivables at December 31, 1993 included
$3,046,579, net of unearned finance charges and insurance premiums,
of real estate secured loans, principally first and second mortgages
secured by residential properties, of which approximately 49% are
located in California. The commercial finance receivables portfolio
represents lending arrangements with over 120,000 customers. At
December 31, 1993, the portfolio included 11 customers with
individual balances in excess of $15,000. These accounts represented
9% of commercial gross finance receivables outstanding at
December 31, 1993.
PAGE 34
Note D - Finance Receivables
The carrying amounts and estimated fair values of the finance
receivable portfolio at December 31, 1993 and 1992 are as follows:
1993 1992
------------------------ ------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
--------- ----------- --------- --------
Fixed rate
receivables:
Consumer $3,547,210 $4,307,048 $3,478,148 $4,216,770
Commercial 134,040 132,662 144,881 143,927
Variable
rate receivables:
Commercial 2,390,328 2,390,328 2,371,483 2,371,483
---------- ---------- ---------- ----------
$6,071,578 $6,830,038 $5,994,512 $6,732,180
========== ========== ========== ==========
The estimated fair values of consumer finance receivables,
substantially all of which are fixed rate instalment loans
collateralized by residential real estate, and the fixed rate
commercial finance loans 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 after adjustment
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 commercial loans, which comprise the
majority of the commercial loan portfolio, the carrying amount
represents a reasonable estimate of fair value.
Additional information pertaining to finance receivables outstanding
follows:
Maximum
Original Term
Receivables (in months)
----------------- ------------------
1993 1992 1993 1992
---- ---- ---- ----
Consumer:
Consumer instalment loans:
Real estate secured $3,214,468 $3,267,479 180 180
Other 595,284 482,819 60 60
Other finance receivables 22,276 6,355 36 36
---------- ----------
3,832,028 3,756,653
Less unearned finance charges and 181,505 177,310
insurance premiums
---------- ----------
Net finance receivables 3,650,523 3,579,343
---------- ----------
Commercial:
Inventory finance 1,959,757 1,873,895 12 12
Business credit 553,859 575,984 60 60
---------- ----------
Core businesses 2,513,616 2,449,879
Other 127,687 208,866 180 180
---------- ----------
2,641,303 2,658,745
Less unearned finance charges 40,856 55,212
---------- ----------
Net finance receivables 2,600,447 2,603,533
---------- ----------
Total net finance receivables $6,250,970 $6,182,876
========== ==========
PAGE 35
Contractual maturities of finance receivables outstanding, before
deduction of unearned finance charges and insurance premiums, at
December 31, 1993 are:
Consumer % Commercial % Total %
---------- ------ ---------- ------ ---------- ------
1994 $ 562,579 14.7 $2,103,444 79.7 $2,666,023 41.2
1995 424,003 11.1 247,800 9.4 671,803 10.4
1996 384,416 10.0 217,930 8.3 602,346 9.3
1997 297,727 7.8 26,605 1.0 324,332 5.0
1998 237,582 6.2 43,183 1.6 280,765 4.3
Thereafter 1,925,721 50.2 2,341 1,928,062 29.8
---------- ------ ---------- ------ ---------- ------
Total $3,832,028 100.0 $2,641,303 100.0 $6,473,331 100.0
========== ===== ========== ===== ========== =====
Experience of the Company has shown that a substantial majority of
the consumer finance receivables will be renewed or prepaid many
months prior to contractual maturity dates. Accordingly, the above
schedule is not to be regarded as a forecast of future cash
collections. For 1993 and 1992, the ratio for consumer finance
receivables of principal cash collections (excluding balances
refinanced) to average net finance receivables was 29% and 26%.
The commercial lending operation's business credit unit provides
revolving lines of credit, letters of credit and standby letters of
credit. At December 31, 1993 and 1992, borrowers' unused credit
availability under such arrangements totaled $533,781 and $416,200,
and the estimated amount the Company would have to pay another
financial institution to assume the possible future obligation to
fund them was $1,591 and $,2080.
Note E - Allowance for Losses
Changes in the allowance for losses on finance receivables are:
Consumer Commercial Total
--------- ----------- --------
Balance at January 1, 1991 $ 88,535 $ 99,402 $ 187,937
Provision charged to income 42,214 245,190 287,404
Receivables charged off (34,920) (177,083) (212,003)
Recoveries 1,934 4,469 6,403
Other 422 (2,449) (2,027)
--------- ---------- ----------
Balance at December 31, 1991 98,185 169,529 267,714
Provision charged to income 47,985 36,830 84,815
Receivables charged off (44,448) (122,974) (167,422)
Recoveries 1,487 5,922 7,409
Other (2,014) (2,138) (4,152)
--------- ---------- ----------
Balance at December 31, 1992 101,195 87,169 188,364
Provision charged to income 62,349 31,793 94,142
Receivables charged off (62,524) (51,832) (114,356)
Recoveries 1,871 9,122 10,993
Other 422 (173) 249
--------- ---------- ----------
Balance at December 31, 1993 $ 103,313 $ 76,079 $ 179,392
========= ========== ==========
PAGE 36
Note F - Commercial Lending Special Charges and Assets Held for Sale
The commercial lending operation made a decision late in the fourth
quarter of 1991 to exit the rent-to-own finance business, reduce
lending to certain asset based lending lines, accelerate disposal of
repossessed assets and liquidate receivables remaining from
previously sold businesses. As a result of this action, the
commercial lending operation recognized a special pretax charge of
$200,220 ($130,000 after tax). The $200,220 special charge comprised
$137,404 included in the provision for losses on assets held for sale
and $62,816 included in the provision for losses on receivables. The
$137,404 provision consisted of $117,304 for anticipated losses on
disposition of the assets, generally comprising rent-to-own finance
receivables and repossessed collateral, including rent-to-own stores,
and $20,100 for implementation costs. The 1991 provision for losses
on assets held for sale of $141,225 comprises the $137,404 portion of
the special charge referred to above plus an additional provision of
$3,821.
In 1993, an additional provision of $50,000,000 ($35,960 after tax)
was made to reduce the net carrying value of repossessed rent-to-own
stores to their estimated realizable value.
Assets held for sale are:
1993 1992
---- ----
Consumer:
Repossessed residential properties $137,455 $ 89,405
Other repossessed assets 1,746 2,787
-------- --------
139,201 92,192
Less valuation allowance 2,547 2,206
-------- --------
136,654 89,986
-------- --------
Commercial:
Rent-to-own finance receivables 120,469 179,013
Repossessed rent-to-own stores 107,227 103,418
Other repossessed assets 19,403 30,633
-------- --------
247,099 313,064
Less valuation allowance 156,985 121,549
-------- --------
90,114 191,515
-------- --------
Total $226,768 $281,501
======== ========
PAGE 37
Note G - Debt
Debt consists of:
1993 1992
----- -----
Unsubordinated
Short-term debt:
Commercial paper $3,585,249 $2,748,766
Other 84,644 64,342
---------- ----------
3,669,893 2,813,108
Less classified as long-term debt 2,505,000 2,813,108
---------- ----------
Total unsubordinated short-term debt 1,164,893 --
---------- ----------
Long-term debt:
Short-term debt supported by noncancelable
credit agreements 2,505,000 2,813,108
4.48% to 9.10% notes and debentures
due 1994 to 2002 2,323,110 2,673,847
Loans due to Transamerica Corporation and its
subsidiaries, at various interest rates,
maturing through 1994 67,491 101,376
Zero to 6.50% notes and debentures due 1994 to
2012 issued at a discount to yield 13.80% to
13.88%; with benefit from deferred taxes,
effective cost of 8.79% to 12.35%; maturity
value of $722,760 274,884 444,200
---------- ----------
Total unsubordinated long-term debt 5,170,485 6,032,531
---------- ----------
Total unsubordinated debt 6,335,378 6,032,531
---------- ----------
Subordinated
6.75% to 12.75% notes due 1994 to 2003 696,125 557,045
---------- ----------
Total debt $7,031,503 $6,589,576
========== ==========
The estimated fair value of debt, using rates currently available for
debt with similar terms and maturities, at December 31, 1993 and 1992
was $7,407,000 and $6,805,000.
In 1993, the Company redeemed $125,000 of deep discount long-term
debt with a book value of $90,710, which resulted in a $23,084
extraordinary loss, after related taxes of $11,447.
Commercial paper notes are issued for maturities up to 270 days in
the U.S. and 365 days in Canada. At December 31, 1993, $200,000 of
the outstanding commercial paper, which matured January 24, 1994, was
held by Transamerica Corporation. In support of its commercial paper
operations, bank credit lines aggregating $721,814 at December 31,
1993 were available to the Company, $75,000 of which were also
available to Transamerica Corporation. At December 31, 1993, all
borrowings under these lines were made by the Company and amounted to
$240,927, of which $156,283 is long-term.
In support of the short-term debt classified as long-term debt at
December 31, 1993, the Company has unsubordinated noncancelable
credit agreements totaling $3,433,000 with 55 banks, of which
$2,505,000 matures after one year. Fees are paid on the average
unused commitment.
The Company uses interest rate exchange agreements to hedge the
interest rate sensitivity of its outstanding indebtedness. Certain
of these agreements call for the payment of fixed rate interest by
the Company in return for the assumption by other contracting parties
of the variable rate cost. At December 31, 1993, such agreements
covering the notional amount of $214,400 at a weighted average fixed
interest rate of 8.25% expiring through 1999 and $840,000 of one year
agreements expiring in 1994 with an average interest rate of 3.78%
were outstanding. Additionally at December 31, 1993, exchange
agreements covering the notional amount of $216,000 expiring through
1997 were outstanding, in which the Company receives interest from
other contracting parties at a weighted average fixed interest rate
of 6.98% and pays interest at variable rates to those parties. While
the Company is exposed to credit risk in the event of nonperformance
by the other party, nonperformance is not anticipated due to the
credit rating of the counter parties. At December 31, 1993, the
interest rate exchange agreements are with banks rated A or better by
one or more of the major credit rating agencies.
PAGE 38
The estimated fair value of the interest rate exchange agreements,
determined on a net present value basis, at December 31, 1993 and
1992 was a negative $5,320 and $9,067. The fair value represents the
estimated amount that the Company would be required to pay to
terminate the exchange agreements, taking into account current
interest rates.
Long-term debt outstanding at December 31, 1993, other than the
$2,505,000 supported by noncancelable credit agreements, matures as
follows:
Unsubordinated Subordinated Total
-------------- ------------- ------------
1994 $ 900,056 $113,350 $1,013,406
1995 703,414 40,000 743,414
1996 469,813 79,195 549,008
1997 198,900 87,100 286,000
1998 196,005 235,480 431,485
Thereafter 197,297 141,000 338,297
---------- -------- -----------
$2,665,485 $696,125 $3,361,610*
========== ======== ===========
*Includes the accreted values at December 31, 1993 on original issue
discount debt and not the amount due at maturity.
Interest payments, net of amounts received from interest rate
exchange agreements, totaled $513,541 in 1993, $558,997 in 1992 and
$481,200 in 1991.
Note H - Dividend and Other Restrictions
Consolidated equity is restricted by the provisions of debt
agreements. At December 31, 1993, $180,127 was available for
dividends and other stock payments. Under certain circumstances, the
provisions of loan agreements and statutory requirements place
limitations on the amount of funds which can be remitted to the
Company by its consolidated subsidiaries. Of the net assets of the
Company's consolidated subsidiaries, as adjusted for intercompany
account balances, at December 31, 1993, $51,985 is so restricted.
Note I - Income Taxes
The provision for income taxes comprises:
1993 1992 1991
Current taxes:
Federal $41,544 $ 95,239 $ 13,606
State 15,427 18,391 20,368
Foreign 88 (14,637) 12,722
------- -------- --------
57,059 98,993 46,696
------- -------- --------
Deferred taxes
Federal 32,461 588 (53,963)
State 5,034 6,533 (8,443)
Foreign 803 14,938 (14,378)
------- -------- --------
38,298 22,059 (76,784)
------- -------- --------
Total income taxes (benefit) $95,357 $121,052 $(30,088)
======= ======== =========
PAGE 39
The difference between federal income taxes computed at the statutory
rate and the total provision for income taxes is:
1993 1992 1991
--------- -------- -------
Federal income taxes (benefit) at
statutory rate $76,967 $96,467 $(42,024)
State income taxes, net of federal
income tax benefit 13,986 16,449 7,953
Book and tax basis difference of
assets acquired 2,999 5,026 6,341
Settlement of disputed items (4,224)
Dividends from affiliates (663) (2,109)
Other 5,629 3,773 (249)
-------- -------- ---------
Total income taxes (benefit) $95,357 $121,052 $ (30,088)
======= ======== =========
Deferred tax liabilities (assets) are comprised of the following at
December 31:
1993 1992
---- ----
Depreciation $197,196 $190,462
Amortization of bond discount and interest 66,071 65,380
Direct finance and sales type leases 7,865 34,134
Insurance reserves and acquisition costs 9,698 7,785
Other 35,475 10,410
-------- --------
Gross deferred tax liabilities 316,305 308,171
-------- --------
Allowances for losses on finance
receivables and other assets (113,331) (104,221)
Post employment benefits other than pensions (8,166) (8,343)
Net operating loss and foreign tax
credit carryforwards (10,683) (33,263)
Other (15,993) (21,855)
-------- --------
Gross deferred tax assets (148,173) (167,682)
-------- --------
Net deferred tax liability $168,132 $140,489
======== ========
Pretax income (loss) from foreign operations totaled $4,236 in 1993,
$4,332 in 1992 and $(25,960) in 1991. Income tax payments totaled
$77,089 in 1993, $92,190 in 1992 and $27,802 in 1991.
Note J- Pension and Stock Savings Plans and Other Post Employment
Benefits
The Company participates in the Retirement Plan for Salaried
Employees of Transamerica Corporation and Affiliates (the pension
plan). The pension plan is a noncontributory defined benefit plan
covering substantially all employees. Pension benefits are based on
the employee's compensation during the highest paid 60 consecutive
months during the 120 months before retirement. Pension costs are
allocated to the Company based on the number of participants. 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. Currently, the Company matches 75 cents
for every dollar contributed up to six percent of eligible
compensation. The Company matching portion is always invested in
Transamerica Corporation common stock. Employees are 25% vested in
the matching contributions after three years, 50% vested after four
years and 100% vested after five years of service. The Company's
total costs for both the pension plan and the 401(k) plan were $9,163
in 1993, $7,913 in 1992 and $9,045 in 1991.
The Company also participates in various programs sponsored by
Transamerica Corporation that provide medical and certain other
benefits to eligible retirees. Effective January 1, 1991,
Transamerica Corporation and its subsidiaries elected early adoption
of FASB Statement No. 106 on accounting for post employment benefits
other than pensions. Adoption of the statement increased the
Company's loss before the cumulative effect of the accounting change
and net loss for the year ended December 31, 1991 by $377 and
$11,252.
PAGE 40
Note K - Commitments and Contingencies
The Company and its subsidiaries have noncancelable lease agreements
expiring mainly through 1998. These agreements are principally
operating leases for facilities used in the Company's operations.
Total rental expense amounted to $54,799 in 1993, $60,286 in 1992 and
$62,899 in 1991.
Contingent liabilities arising from litigation, income taxes and
other matters are not considered material in relation to the
consolidated financial position of the Company and its subsidiaries.
Note L - Business Segment Information
Business segment information is:
Revenues Operating Profit (Loss)
-------------------------------- ----------------------------------
1993 1992 1991 1993 1992 1991
--------- ---------- ---------- ---------- ---------- ----------
Consumer lending $651,218 $654,078 $621,998 $ 172,593 $ 181,676 $ 164,401
Commercial lending 333,297 356,275 384,902 (31,074) 25,536 (346,484)
Leasing 407,774 420,512 396,418 91,470 92,073 74,025
Other operations (163) 18 (901) 407 (1,370) (1,692)
---------- ---------- ---------- ---------- ---------- ----------
$1,392,126 $1,430,883 $1,402,417 233,396 297,915 (109,750)
========== ========== ==========
Corporate expense (15,158) (14,191) (13,849)
Income taxes (95,357) (121,052) 30,088
--------- --------- ----------
Income (loss) before extraordinary item and
cumulative effect of accounting change $ 122,881 $ 162,672 $ (93,511)
========= ========= ==========
Assets Liabilities
---------------------------------- ----------------------------------
1993 1992 1991 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ----------
Consumer lending $3,985,720 $3,846,327 $3,639,346 $3,511,823 $3,402,670 $3,208,252
Commercial lending 3,461,316 3,513,760 3,647,369 2,836,763 2,882,617 3,004,206
Leasing 1,696,983 1,339,751 1,257,976 1,417,965 1,094,730 1,002,994
Other operations 143,321 110,386 65,964 67,731 1,271 5,399
Consolidation
adjustments (255,970) (121,330) (91,398) (252,533) (121,330) (61,645)
---------- ---------- ---------- ---------- ---------- ----------
Total $9,031,370 $8,688,894 $8,519,257 $7,581,749 $7,259,958 $7,159,206
========== ========= ========== ========== ========== ==========
Additions, at Cost,
to Property & Equipment Depreciation Expense
---------------------------------- -------------------------------
1993 1992 1991 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ----------
Consumer lending $ 6,169 $ 5,316 $ 2,684 $ 3,525 $ 2,607 $ 2,296
Commercial lending 6,992 6,938 10,971 5,396 7,538 8,754
Leasing 411,026 337,051 197,642 105,852 102,805 93,965
Other operations 82 74 65
---------- ---------- ---------- ---------- ---------- ----------
Total $424,187 $349,305 $211,297 $114,855 $113,024 $105,080
========== ========= ========== ========== ========== ==========
PAGE 41
Note M - Transactions With Affiliates
On November 1, 1990, the Company sold without recourse a pool of real
estate secured receivables to TFSFC for cash of $547,655 plus
interest of $9,661 to the closing date of December 17, 1990. The
purchase price, which represented the fair value of the receivables
sold, was based on an independent appraisal. For financial reporting
purposes, the intercompany gain on this sale has been deferred and is
being amortized to income as a component of the Company's equity in
the distributable earnings of TFSFC. TFSFC subsequently securitized
and sold to outside investors a $430,000 participation interest in
the receivable pool. The Company continues to service these
receivables for a fee. The Company has entered into an agreement
whereby it directs the investment of excess funds in the pool pending
their distribution and guarantees that such funds will be invested at
a certain minimum rate, currently 9.25%.
Investments in and advances to affiliates consist of the following at
December 31:
1993 1992
---- ----
Preferred stock of TFSFC $ 72,946 $ 82,665
Unamortized deferred gain on sale of (18,729) (31,571)
receivables to TFSFC
Unsecured receivable from BWAC Twelve, 308,858 238,595
Inc.
Unsecured receivable from Transamerica
HomeFirst, Inc. 7,937 551
-------- --------
$371,012 $290,240
======== ========
The receivables from BWAC Twelve, Inc. and Transamerica HomeFirst,
Inc. are payable on demand and bear interest at a rate that varies
based on the Company's average cost of borrowings. The weighted
average interest rate was 4.21% in 1993, 4.04% in 1992 and 7.18% in
1991. Under the terms of certain debt agreements, the Company may
maintain investments in and advances to affiliates up to $649,621 at
December 31, 1993.
Income from affiliates comprises the following for the years ended
December 31:
1993 1992 1991
---- ---- ----
Interest income $11,572 $13,486 $14,299
Servicing fees 833 861 866
Amortization of deferred gain and
equity in earnings of TFSFC 5,616 6,901 14,359
------- ------- -------
$18,021 $21,248 $29,524
======= ======= =======
Note N - Subsequent Event
On March 15, 1994, the Company completed the purchase of
substantially all of the assets of the container rental division
of Tiphook plc for approximately $1,100,000 in cash.
PAGE 42
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS
OF OPERATIONS
The following table sets forth revenues and income by line of
business for the periods indicated (in thousands):
Income (Loss) Before
Revenues Extraordinary Item
------------------ ---------------------
1993 1992 1993 1992
------- -------- ------- -------
Consumer lending $651,218 $654,078 $91,742 $99,210
Commercial lending 333,297 356,275 (12,775) 17,938
Leasing 407,774 420,512 53,641 58,068
Other operations (163) 18 1,931 (888)
Amortization of goodwill (11,658) (11,656)
---------- ---------- --------- ---------
Total $1,392,126 $1,430,883 $122,881 $162,672
========== ========== ======== ========
The following discussion should be read in conjunction with the
information presented under Item 1, Business.
Consumer Lending
Consumer lending income, before the amortization of goodwill,
in 1993 decreased $7,468,000 (8%) from 1992. The decrease was
principally due to increased operating expenses, an increased
provision for losses on receivables and lower revenues that more
than offset lower interest expense and a $5,269,000 benefit
included in operating expenses from a reversal of reserves
related to a 1990 sales of receivables to Transamerica Financial
Services Finance Co. which subsequently were securitized.
Revenues in 1993 decreased $2,860,000 (%) from 1992 principally
because of lower income from affiliates and servicing fees
related to the run off of the receivables that Transamerica
Financial Services Finance Co. securitized in 1990 and lower fees
due to reduced volume of real estate secured loans. Operating
expenses increased in 1993 mainly due to investments in new
branches and losses on the disposal of repossessed assets. With
the adoption in the fourth quarter of 1992 of a required new
accounting rule, losses on the disposal of repossessed assets,
which were $5,952,000 for 1993 and $3,021,000 in the fourth
quarter of 1992, were classified as operating expenses rather
than as credit losses. Data for periods prior to the fourth
quarter of 1992 have not been reclassified.
The provision for losses on receivables increased $14,364,000
(30%) in 1993 over 1992 due to increased credit losses. Credit
losses, net of recoveries, as a percentage of average consumer
finance receivables outstanding, net of unearned finance charges
and insurance premiums, were 1.67% in 1993 compared to 1.22% in
1992. Credit losses increased partly due to continued
sluggishness in the domestic economy and a weak California real
estate market.
Interest expense declined $24,449,000 (9%) in 1993 from 1992
due to a lower average interest rate which more than offset the
effect of higher borrowings due to increased average receivables
outstanding. Net consumer finance receivables outstanding
increased $71,180,000 (2%) in 1993.
Net consumer finance receivables at December 31, 1993 included
$3,046,579 of real estate secured loans, principally first and
second mortgages secured by residential properties, of which
approximately 49% are located in California. Company policy
generally limits the amount of cash advanced on any one loan,
plus any existing mortgage, to between 70% and 80% (depending on
location) of the appraised value of the mortgaged property, as
determined by qualified independent appraisers at the time of
PAGE 43
loan origination. Delinquent real estate secured loans, which
are defined as loans contractually past due 60 days or more,
totaled $59,767 (1.86% of total real estate secured loans
outstanding) at December 31, 1993 compared to $60,211,000 (1.84%
of total real estate secured loans outstanding) at December 31,
1992.
Management has established an allowance for losses equal to
2.83% of net consumer finance receivables outstanding at December
31, 1993 and 1992.
Generally, by the time an account secured by residential real
estate becomes past due 90 days, foreclosure proceedings have
begun, at which time the account is moved from finance
receivables to other assets and is written down to the estimated
realizable value of the collateral if less than the account
balance. After foreclosure, repossessed assets are carried at
the lower of cost or fair value less estimated selling costs and
are reclassified to assets held for sale. Accounts in
foreclosure and repossessed assets held for sale totaled
$214,665,000 at December 31, 1993 compared to $176,054,000 at
December 31, 1992. The increase primarily reflects increased
repossessions in California and longer disposal times due to its
weak real estate market.
Commercial Lending
Commercial lending results, before the amortization of goodwill
and a $23,084,000 after tax extraordinary loss on the early
extinguishment of $125,000,000 deep discount long-term debt in
1993, were a a loss of $12,775,000 for 1993 compared to income in
1992 of $17,938,000. The 1993 loss was due primarily to the
inclusion of a $50,000,000 ($35,960,000 after tax) provision to
reduce the net carrying value of repossessed rent-to-own stores
to their estimated realizable value. Information received during
the year from prospective buyers of the repossessed rent-to-own
stores held for sale indicated that the realizable value of the
business had declined below its carrying value.
The 1993 results also included an $8,799,000 after tax charge
for the restructuring of the commercial lending unit's
infrastructure, a $4,224,000 after tax provision for anticipated
legal and other costs associated with the runoff of the
liquidating portfolios and a $4,224,000 tax benefit from the
resolution of prior years' tax matters. Excluding the
aforementioned items, commercial lending income, before the
amortization of goodwill and the extraordinary loss on the early
extinguishment of debt, increased $14,046,000 (78%) in 1993 over
1992. This improvement was primarily due to lower operating
expenses, a lower provision for losses on receivables and
stronger margins brought about by the declining interest rate
environment. The interest rates at which commercial lending
borrows funds for its businesses have moved more quickly than the
rates at which it lends to its customers. As a result, margins
have been enhanced by the declining interest rate environment.
Revenues in 1993 decreased $22,978,000 (6%) from 1992 primarily
as a result of reduced yields attributable to the current low
interest rate environment.
Interest expense declined $25,459,000 (19%) in 1993 from 1992
as a result of lower average interest rates. Operating expenses
increased $14,127,000 (9%) during 1993 over 1992 due to the
restructuring charge and provision for anticipated legal and
other costs associated with the runoff of the liquidating
portfolios described above, aggregating $21,500,000, partially
offset by cost reduction efforts in the inventory finance and
business credit core businesses. The provision for losses on
receivables in 1993 was $5,037,000 (14%) less than in 1992
primarily due to lower credit losses. Credit losses, net of
recoveries, as a percentage of average commerical finance
receivables outstanding, net of unearned finance charges, were
1.64% in 1993 compared to 4.53% in 1992. Credit losses declined
in 1993 primarily due to lower losses in the liquidating
portfolios.
In March 1992, the commercial lending operation purchased for
cash a business credit portfolio consisting of twelve
manufacturer/distributor accounts with a net outstanding balance
of $134,000,000.
PAGE 44
Net commercial finance receivables outstanding decreased
$3,086,000 (%) from December 31, 1992. Growth in the inventory
finance portfolio was more than offset by a decline in the
liquidating and business credit portfolios. Management has
established an allowance for credit losses equal to 2.93% of net
commercial finance receivables outstanding as of December 31,
1993 compared to 3.35% at December 31, 1992.
Effective in 1993, the policies used for the determination of
delinquent and nonearning receivables have been revised to
provide greater consistency among the company's receivable
portfolios. It is management's view that the new methodology
provides a better and more meaningful assessment of the condition
of the portfolio. Delinquent receivables, which were generally
defined as financed inventory sold but unpaid 30 days or more,
the portion of business credit loans in excess of the approved
lending limit and all other receivable balances contractually
past due 60 days or more, are now defined as the instalment
balance for inventory finance and business credit receivables and
the receivable balance for all other receivables over 60 days
past due. Nonearning receivables, which were defined as
receivables from borrowers in bankruptcy or litigation and other
accounts for which full collectibility was doubtful, are now
defined as receivables from borrowers that are over 90 days
delinquent or at such earlier time as full collectibility becomes
doubtful. At December 31, 1993, delinquent receivables were
$26,940,000 (1.02% of receivables outstanding) and nonearning
receivables were $31,763,000 (1.20% of receivables outstanding).
At December 31, 1992, delinquent receivables were $63,384,000
(2.38% of receivables outstanding) and nonearning receivables
were $90,919,000 (3.42% of receivables outstanding). Delinquency
and nonearning data as of December 31, 1992 has not been
restated.
Assets held for sale as of December 31, 1993 totaled
$90,114,000, net of a $156,985,000 valuation allowance, and
consisted of rent-to-own finance receivables of $120,469,000,
repossessed rent-to-own stores of $107,227,000 and other
repossessed assets of $19,403,000. Assets held for sale at
December 31, 1992 totaled $191,515,000, net of a $121,549,000
valuation allowance, and comprised rent-to-own finance
receivables of $179,013,000, repossessed rent-to-own stores of
$103,418,000 and other repossessed assets of $30,633,000. At
December 31, 1993, $27,489,000 of the rent-to-own finance
receivables were classified as both delinquent and nonearning.
At December 31, 1992, delinquent rent-to-own finance receivables
were $15,397,000 and nonearning rent-to-own finance receivables
were $32,615,000. Delinquency and nonearning data as of December
31, 1992 has not been restated.
Leasing
Leasing income, before the amortization of goodwill, decreased
$4,427,000 (8%) in 1993 due primarily to an additional tax
provision of $4,300,000 caused by the revaluation of deferred
income tax liability for the 1993 federal tax rate increase.
Excluding the additional tax provision, results for 1993 were
comparable to 1992 as higher fleet utilization and per diem rates
in the rail trailer business, a larger finance lease portfolio
and a larger fleet of refrigerated containers were offset by a
decline in standard container utilization.
In November 1992, the company sold its domestic over-the-road
trailer business. Proceeds from the sale totaled $191,000,000
and resulted in no gain or loss.
Revenues for 1993 decreased $12,738,000 (3%) from 1992. The
decline was mainly due to the sale of the domestic over-the-road
trailer business in November 1992 and a decline in standard
container utilization. The decrease was partially offset by
higher fleet utilization and per diem rates in the rail trailer
business, an increased finance lease portfolio, and a larger
fleet of standard containers, refrigerated containers and
European trailers.
PAGE 45
Expenses decreased $12,135,000 (4%) in 1993 from 1992 due to
the sale of the domestic over-the-road trailer business. The
decrease was partially offset by higher ownership cost due to a
larger fleet.
The combined utilization of standard containers, refrigerated
containers, domestic containers, tank containers and chassis
averaged 83% in 1993 compared to 85% in 1992. Rail trailer
utilization was 91% in 1993 compared to 84% in 1992. European
trailer utilization was 89% in 1993 compared to 84% in 1992.
The company's standard container, refrigerated container,
domestic container, tank container and chassis fleet of 316,000
units increased by 36,000 units (13%) in 1993. The rail trailer
fleet of 36,500 units increased by 2,100 units (6%) in 1993. At
December 31, 1993, the company also operated a fleet of 3,800
over-the-road trailers in Europe.
Other Operations
The other operations represent principally unallocated interest
expense and certain financing activities of Transamerica
Equipment Leasing Company, Inc. which are not related to the
leasing operations of Transamerica Leasing Inc. and are therefore
not combined with such operations.
PAGE 46
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands)
Year Ended
Three Months Ended December 31,
3/31/93 6/30/93 9/30/93 12/31/93 1993
------- ------- ------- --------- -----------
Revenues $339,347 $344,252 $350,187 $358,340 $1,392,126
======== ======== ======== ======== ==========
Income (loss) before
extraordinary item $40,053 $41,233 $(2,347) $43,942 $122,881
Extraordinary loss
on early (23,084) (23,084)
extinguishment of ------- ------- ------- ------- -------
debt
Net income (loss) $40,053 $41,233 $(2,347) $20,858 $99,797
======= ======= ======= ======== =======
Year Ended
Three Months Ended December 31,
3/31/92 6/30/92 9/30/92 12/31/92 1992
------- ------- ------- -------- -----------
Revenues $346,905 $361,458 $357,698 $364,822 $1,430,883
======== ======== ======== ======== =========
Net income $34,813 $39,337 $42,689 $45,833 $162,672
======= ======= ======= ======= ========
Note A. Certain amounts for the first three quarters of 1992
have been reclassified to conform with the presentation followed
in the fourth quarter of 1992.
Note B. The loss for the three months ended September 30, 1993
resulted primarily from after tax charges by the commerical
lending operation of $35,960,000 to reduce the net carrying value
of repossessed rent-to-own stores held for sale to their
estimated realizable value and $8,799,000 for the restructuring
of the unit's infrastructure.
PAGE 47
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
Financial Statement Schedules
PAGE 48
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
COL A. COL. B COL C. COL D. COL E.
- ---------------------------------------------------------------------------------------------------
ADDITIONS
(1) (2)
Charged
Balance at Charged to to Other Balance at
Beginning of Costs and Accounts - Deductions- End
DESCRIPTION Period Expenses Describe Describe of Period
- ------------------------ ------------ ---------- --------- ----------- ---------
(in thousands)
Year Ended December 31,
1993:
Deducted from assets:
Allowance for losses:
Consumer:
Finance receivables $101,195 $62,349 $422 (B) $ 60,653 (C) $103,313
Assets held for sale 2,206 5,952 (A) 5,611 (D) 2,547
Commercial:
Finance receivables 87,169 31,793 (173) (E) 42,710 (C) 76,079
Assets held for sale 121,549 50,000 365 (F) 14,929 (D) 156,985
Year Ended December 31,
1992:
Deducted from assets:
Allowance for losses:
Consumer:
Finance receivables $98,185 $47,985 $(2,014) (E) $42,961 (C) $101,195
Assets held for sale 3,021 (A) 1,200 (G) 2,015 (D) 2,206
Commercial:
Finance receivables 169,529 36,830 (2,138) (E) 117,052 (C) 87,169
Assets held for sale 142,062 2,030 (F) 22,543 (D) 121,549
Year Ended December 31,
1991:
Deducted from assets:
Allowance for losses:
Consumer finance $88,535 $42,214 $422 (B) $32,986 (C) $98,185
receivables
Commercial:
Finance receivables 99,402 245,190 (2,449) (E) 172,614 (C) 169,529
Assets held for sale 121,125 (H) 20,937 (F) 142,062
- --------------
(A)Provision charged to operating expenses for losses on disposal of repossessed assets.
(B)Increase in connection with purchase of receivables and other adjustments.
(C)Charges for net credit losses.
(D)Charges for losses on disposal of assets held for sale.
(E)Decrease in 1993 and 1992 was due to foreign exchange and other adjustments. The decrease
in 1991 was due to reclassification of valuation allowance on receivables reclassified to
assets held for sale of $(4,221,000); increase in connection with purchase of receivables
and foreign exchange and other adjustments of $1,772,000.
(F)Increase in 1993 and 1992 was due to recoveries on assets held for sale, and in 1991 the
increase was due to reclassification of valuation allowance on assets held for sale from
repossessed assets of $16,716,000 and from the allowance for losses on finance receivables
of $4,221,000.
(G)Reclassification of allowance for losses on accounts in process of foreclosure.
(H)Includes special charge of $117,304,000 plus an additional provision of $3,821,000 for
valuation allowance on assets held for sale.
PAGE 49
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
COL A. COL. B COL. C COL. D COL. E COL. F
- -------------------------------------------------------------------------------------------------------
Maximum Average
Weighted Amount Amount Weighted
Balance at Average Outstanding Outstanding Average Interest
CATEGORY OF AGGREGATE End of Interest Rate During the During the Rate During the
SHORT-TERM BORROWINGS Period (D)(E) Period (F) Period (G) Period (D)(H)
- -------------------------- ---------- ------------ ----------- ----------- --------------
(dollar amounts in thousands)
Year Ended December 31,
1993:
Commercial paper(A) $1,080,249 3.17% $1,080,249 $493,264 3.41%
Bank loans(B)(C) 84,644 84,644 57,598 3.56%
Year Ended December 31,
1992:
Commercial paper (A) $853 $79 4.21%
Bank loans (B)
Year Ended December 31,
1991:
Commercial paper (A) $38,560 $3,213 6.34%
Bank loans (B) 93,797 7,967
- ------------------
(A) Commercial paper notes are issued for maturities up to 270 days in the United
States and 365 days in Canada. Commercial paper balances have been reclassified to
long-term debt to the extent of available noncancelable long-term lines of credit.
(B) Bank loans have been reclassified to long-term debt to the extent of available
noncancelable long-term lines of credit.
(C) All short-term bank loans outstanding were denominated in foreign currencies.
(D) Excludes interest rates on short-term borrowings denominated in foreign
currencies.
(E) Computed by dividing the annualized interest expense on the debt outstanding at
year end by the amount outstanding at year end.
(F) The maximum outstanding during 1993, 1992 and 1991 for combined commercial paper
and bank loans was $1,164,893,000, $853,000 and $132,357,000.
(G) Computed by dividing the total of the month-end balances outstanding by the number
of months in the year.
(H) Computed by dividing the actual interest expense by the average debt outstanding.
PAGE 50
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
COL. A COL. B
- -------------------------------------------- -------------------------------------------
Charged to Costs and Expenses
ITEM Years Ended December 31,
----------------------------------------
1993 1992 1991
------- -------- -------
(in thousands)
Amortization of intangible assets:
Amortization of goodwill $11,658 $11,656 $12,456
Amortization of other intangible assets 9,659 7,225 3,987
------- ------- -------
Total $21,317 $18,881 $16,443
======= ======= =======
Advertising costs $20,246 $17,768 $16,502
======= ======= =======
Maintenance and repairs $34,220 $49,193 $44,348
======= ======= =======