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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1994 Commission file number 1-6798
Transamerica Finance Corporation
(Exact name of registrant as specified in its charter)
Delaware 95-1077235
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1150 South Olive Street, Los
Angeles, California 90015
- ------------------------------- ----------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (213) 742-4321
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
--------------------- -------------------------------
8-1/2% Notes Maturing at 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 27, 1995: 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.
(THIS PAGE INTENTIONALLY LEFT BLANK)
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, life insurance, real estate
services 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.
Information concerning the 1994 acquisition of the container
operations of Tiphook plc by the leasing operations of the Company is
outlined in Note B of Notes to Financial Statements (Item 8).
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 $8,724,258,000 at December 31, 1994 and
$7,031,503,000 at December 31, 1993. Variable rate debt was
$4,279,886,000 at December 31, 1994 compared to $3,970,484,000 at
December 31, 1993. The ratio of debt to debt plus equity was 85% at
December 31, 1994 and 83% at December 31, 1993.
Transamerica Finance Corporation offers publicly, from time to time,
senior or subordinated debt securities. Public debt issued totaled
approximately $1,516,000,000 in 1994, $407,000,000 in 1993 and
$538,700,000 in 1992. 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, $100,000,000 had not been issued at December 31, 1994. In
addition, under a shelf 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 $337,220,000 had not been issued at December 31, 1994.
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 $14,807,548,000 during
1994, $11,535,766,000 during 1993 and $9,415,231,000 during 1992.
CONSUMER LENDING
General
The Company's consumer lending services are provided by Transamerica
Financial Services, based in Los Angeles, California, which has 568
branch lending offices. Branch offices are located in the United
States (549 in 41 states), Canada (13) and United Kingdom (6).
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 Income from the date of acquisition.
The consumer lending operation makes both real estate secured and
unsecured loans to individuals. 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.
The consumer lending operation 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. Of the company's net finance receivables outstanding at
December 31, 1994, 81% are secured by residential properties. Of the
company's net finance receivables secured by residential properties,
64% are secured by first mortgages. 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 on the time of loan origination. Since 1991,
the consumer lending operation 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 from
dealers of retail finance contracts covering principally appliances,
furniture and services.
When permitted by law, the consumer lending operation offers to
arrange credit life and disability insurance in connection with
consumer instalment loans and generally requires that property
securing consumer loans be insured. Consumer lending 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.
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,
-----------------------------------------------------------
1994 1993 1992 1991 1990
----------- --------- ---------- --------- ----------
(Dollar amounts in thousands)
Consumer
instalment
loans: (1)(2)
Real estate
secured(3) $1,708,806 $1,039,394 $1,120,549 $1,308,941 $1,800,204
71% 65% 72% 81% 87%
Other(4) 623,619 524,241 436,521 310,607 276,240
26% 33% 28% 19% 13%
__________ __________ __________ __________ __________
2,332,425 1,563,635 1,557,070 1,619,548 2,076,444
97% 98% 100% 100% 100%
Other finance
receivables(5) 72,708 29,181 4,843 5,310 5,773
3% 2%
__________ __________ __________ __________ __________
Total $2,405,133 $1,592,816 $1,561,913 $1,624,858 $2,082,217
100% 100% 100% 100% 100%
========== ========== ========== ========== ==========
- ------------
(1)Includes balances refinanced.
(2)Includes $491,236,000 in 1990 related to the purchase of NOVA
Financial Services 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 1994 increase was
mainly due to favorable results from new real estate loan products
and an improving real estate market other than in California. The
1994 volume also included $117,000,000 of purchased receivables.
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 increases since 1990 reflect general expansion in consumer
lending's program of non-real estate secured loans.
(5)The increases in 1994 and 1993 resulted from expansion in the
retail finance contract business, which consists of purchasing
retail finance contracts from dealers principally on appliances,
furniture and services. The 1994 volume included $7,855,000 of
purchased contracts. The amounts for 1990 through 1992
principally represented automobiles leased to affiliated
companies.
---------------
Consumer Finance Receivables Outstanding
As of December 31,
1994 1993 1992 1991 1990
---------- --------- -------- -------- --------
(Dollar amounts In thousands)
Consumer instalment
loans:
Real Estate
secured(1) $3,522,966 $3,214,468 $3,267,479 $3,268,918 $2,962,674
81% 84% 87% 91% 91%
Other(2) 758,798 595,284 482,819 334,304 291,248
18% 15% 13% 9% 9%
---------- ---------- ---------- ---------- ----------
4,281,764 3,809,752 3,750,298 3,603,222 3,253,922
99% 99% 100% 100% 100%
Other finance
receivables(3) 58,197 22,276 6,355 7,503 9,193
1% 1%
---------- ---------- ---------- ---------- ----------
4,339,961 3,832,028 3,756,653 3,610,725 3,263,115
100% 100% 100% 100% 100%
Less unearned
finance charges
and insurance
premiums 197,975 181,505 177,310 165,295 150,229
---------- ---------- ---------- ---------- ----------
Total net finance
receivables(4) $4,141,986 $3,650,523 $3,579,343 $3,445,430 $3,112,886
========== ========== ========== ========== ==========
- ---------------
(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 exclude 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 1990 through
1994 were 18.2%, 18.0%, 17.9%, 17.5% and 17.5%.
A summary of consumer instalment loan activity for the years
indicated is as follows:
Years Ended December 31,
------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Volume by source:
New borrowers 41.3% 45.5% 46.0% 38.4% 32.8%
Former borrowers 8.5 15.6 10.5 8.2 8.4
Renewals:
Balances refinanced 27.7 19.6 21.9 27.4 29.1
Additions to renewed
balances 22.5 19.3 21.6 26.0 29.7
-------- -------- -------- -------- --------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ========
Average size of loan
made including
renewals $ 12,154 $ 11,561 $ 13,489 $ 16,756 $ 17,989
Outstanding at end of
year:
Amount
(in thousands) $4,281,764 $3,809,752 $3,750,298 $3,603,222 $3,253,922
Number 309,133 251,457 219,911 195,377 183,825
Average balance $13,851 $15,151 $17,054 $18,442 $17,701
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 for
the years indicated:
As of December 31,
-------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Consumer instalment loans:
Real estate secured:(1)
60 days and over 1.78% 1.86% 1.84% 1.73% 1.49%
90 days and over 1.08 1.20 1.10 0.94 0.81
Other consumer instalment
loans:(2)
60 days and over 3.35 2.71 2.00 2.19 2.09
90 days and over 2.38 2.22 0.26 1.49 1.49
------- ------- ------- ------- -------
Total consumer instalment
loans:
60 days and over 2.06 1.99 1.86 1.77 1.54
90 days and over 1.31 1.36 0.99 0.99 0.87
Other finance receivables:
60 days and over 3.65 3.96 0.09 0.14
90 days and over 2.55 2.30 0.05 0.07
------- ------- ------- ------- -------
Total finance
receivables:(3)(4)
60 days and over 2.08% 2.00% 1.86% 1.76% 1.54%
90 days and over 1.33% 1.36% 0.99% 0.99% 0.87%
===== ===== ===== ===== =====
- --------------
(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 increase in 1994 reflects the changing mix of products in the
portfolio and the introduction of new products with higher delinquency
experience.
(3) The increases through 1993 were principally due to the
sluggishness in the domestic economy and, in particular, the
weakening in the California real estate market.
(4) Delinquency statistics shown above exclude accounts in foreclosure and
assets held for sale.
--------------
Nonearning Receivables
Nonearning consumer finance receivables, which are defined generally
as those past due more than 29 days, amounted to $194,272,000 and
$156,542,000 at December 31, 1994 and 1993. 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. Nonearning receivables exclude
accounts in foreclosure and assets held for sale. During 1994 and
1993, the gross amount of interest income that would have been
recorded on receivables classified as nonearning at year end was
$28,539,000 and $25,496,000, and the amount of interest on those loans
that was recognized in income was $16,503,000 and $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 $226,119,000
at December 31, 1994 compared to $214,665,000 at December 31, 1993.
The increase primarily reflects higher inventory in California due to
California's continuing weak real estate market and resultant longer
disposal times. Since future improvement may be impacted by factors
such as economic conditions and the state of the real estate market,
the extent and timing of any change in the trend of foreclosures and
repossessed assets remains uncertain.
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,
------------------------------------------------
1994 1993 1992 1991 1990
-------- ------ ------- ------- --------
(Dollar amounts in thousands)
Provision for credit
losses charged
to income $ 80,406 $ 62,349 $ 47,985 $ 42,214 $ 35,617
Credit losses (net of
recoveries):
Real estate secured
instalment loans(1) $44,145 $41,452 $26,537 $23,316 $20,115
Non-real estate secured
receivables(2) 28,350 19,201 16,424 9,670 5,642
Ratio to average net
finance receivables
outstanding:
Consumer instalment
loans:(3)
Real estate secured 1.42% 1.35% 0.85% 0.78% 0.68%
Other 4.16 3.43 4.25 3.12 2.22
------ ------ ------ ------ ------
Total consumer
instalment loans 1.90 1.67 1.22 1.00 0.80
Other finance receivables 1.73 0.35 0.11 0.25 (0.01)
------ ------ ------ ------ ------
Total(3) 1.90% 1.67% 1.22% 1.00% 0.79%
===== ===== ===== ===== =====
Allowance for losses at
end of year $117,218 $103,313 $101,195 $98,185 $88,535
Ratio to net finance
receivables outstanding 2.83% 2.83% 2.83% 2.85% 2.85%
- -------------
(1)The increases since 1990 resulted mainly from the continued weak
California real estate market. With the adoption in the fourth
quarter of 1992 of a required new accounting rule, losses on the
disposal of repossessed assets, which amounted to $7,314,000 in 1994,
$5,952,000 in 1993 and $3,021,000 in 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.
(2)The increases since 1990 were caused by growth in the related
receivables outstanding and, through 1993, by sluggishness in the
domestic economy.
(3)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 notes 1and 2 above).
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,
---------------------------------------
1994 1993 1992 1991 1990
----- ---- ---- ---- ----
Offices 568 561 509 464 448
Employees 2,366 2,381 2,256 2,148 2,093
The following table sets forth the geographical distribution of the
Company's consumer lending offices at December 31, 1994:
No. of No. of
Offices Offices
-------- -------
United States: United States:
Alabama 14 New Jersey 7
Arizona 20 New Mexico 5
California 157 New York 27
Colorado 9 North Carolina 12
Connecticut 2 Ohio 19
Delaware 2 Oklahoma 5
Florida 31 Oregon 9
Georgia 14 Pennsylvania 21
Hawaii 5 Rhode Island 2
Idaho 5 South Carolina 7
Illinois 30 Tennessee 8
Indiana 14 Texas 6
Iowa 6 Utah 4
Kansas 2 Virginia 10
Kentucky 8 Washington 23
Louisiana 9 Wisconsin 10
Maryland 10 Wyoming 1
Massachusetts 3 ---
Michigan 9 549
Minnesota 5 Canada 13
Mississippi 2 United Kingdom 6
Missouri 11 ---
Nebraska 2 Total 568
Nevada 3 ===
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.
COMMERCIAL LENDING
General
The Company's commercial lending services are provided by two core
business units: inventory finance and business credit. The commercial
lending business operates from its base in Chicago, Illinois, as well
as from 33 branch lending offices. Branch offices are located in the
United States (14), Puerto Rico (12), Canada (3) and Europe (4). 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 collateralized and consist
of credit lines typically from $5,000,000 to $25,000,000 with 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 receivables outstanding 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 commercial lending
operation 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.
Interest Rate Sensitivity
The relatively short-term nature of the company's financings enables
the commercial lending operation to adjust its finance charges in
response to competitive factors and changes in its costs. The
interest rates at which the commercial lending operation borrows funds
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 changes in the prime lending rates are
effected. Conversely, in declining interest rate environments,
margins are generally enhanced. The commercial lending operation did
not experience margin compression in the rising interest rate
environment of 1994 primarily due to the rapid pace at which changes
in its lending rates responded to other rate changes during the year.
Acquisitions and Divestitures
In 1994, the commercial lending operation sold its U.S. and Canadian
repossessed rent-to-own stores with a net carrying value of
$17,666,000 and in 1990, sold its automobile fleet leasing operation
which included $45,478,000 in finance receivables. Also in 1990, the
insurance finance operations were dividended to TFG.
In 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 1991, an inventory finance portfolio, which
comprised lending arrangements with over 700 manufactured housing and
recreational product dealers with a net balance outstanding of
$290,604,000, was purchased for cash. These transactions were funded
with short-term debt.
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,
-----------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ----------
(Dollar amounts in thousands)
Inventory
finance(1) $ 7,347,448 $ 6,773,720 $ 6,225,899 $ 5,570,486 $ 6,029,587
52% 64% 72% 73% 64%
Business
credit(2) 6,602,199 3,696,180 2,023,010 2,000,434 2,407,304
47% 34% 23% 26% 26%
Insurance
finance(3) 714,918
8%
----------- ----------- ----------- ----------- -----------
Core
businesses 13,949,647 10,469,900 8,248,909 7,570,920 9,151,809
99% 98% 95% 99% 98%
Other(4) 74,860 170,705 427,909 84,139 194,338
1% 2% 5% 1% 2%
----------- ----------- ----------- ----------- -----------
Total $14,024,507 $10,640,605 $ 8,676,818 $ 7,655,059 $ 9,346,147
100% 100% 100% 100% 100%
=========== =========== =========== =========== ===========
Domestic $12,718,350 $ 9,296,240 $ 7,177,063 $ 5,589,008 $ 6,852,181
91% 87% 83% 73% 73%
Foreign(5) 1,306,157 1,344,365 1,499,755 2,066,051 2,493,966
9% 13% 17% 27% 27%
----------- ----------- ----------- ----------- -----------
Total $14,024,507 $10,640,605 $ 8,676,818 $ 7,655,059 $ 9,346,147
100% 100% 100% 100% 100%
=========== =========== =========== =========== ===========
(1)The 1994 and 1993 increases reflect the overall improvement in the
economy and increased sales and marketing programs. The 1992
increase is due to improved economic conditions. The decrease in
1991 reflected the overall weak economy and decline in consumer
spending which supports the businesses for which the company
provides inventory financing. Volume in 1991 includes $290,604,000
related to the purchase of lending arrangements with manufactured
housing and recreational product dealers.
(2)The 1994 and 1993 increases primarily reflect a shift in focus
from purchasing participations from other financial institutions
to originating and selling participations in loans. As a result,
volume and collections have increased. The 1992 amount includes
$134,000,000 related to the purchase of a manufacturer/distributor
business credit portfolio. 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.
(3)1990 includes amounts through July 2, 1990, the date the insurance
finance subsidiaries were dividended to TFG.
(4)The 1994 and 1993 decreases were due to reduced receivable levels
in the liquidating portfolios. 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 2 on table below), prior to implementation or completion
of work-out or liquidation arrangements. The decline in 1991 was
due to the sale of the automobile fleet leasing operation in 1990.
(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,
----------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
(Dollar amounts in thousands)
Inventory
finance(1) $2,078,519 $1,959,757 $1,873,895 $1,928,670 $1,872,191
74% 74% 70% 71% 58%
Business
credit(2)(3) 654,966 553,859 575,984 288,776 968,216
23% 21% 22% 11% 30%
---------- --------- --------- --------- ---------
Core businesses 2,733,485 2,513,616 2,449,879 2,217,446 2,840,407
97% 95% 92% 82% 88%
Other(4) 75,262 127,687 208,866 481,272 403,647
3% 5% 8% 18% 12%
---------- --------- --------- --------- ---------
2,808,747 2,641,303 2,658,745 2,698,718 3,244,054
100% 100% 100% 100% 100%
Less unearned
finance charges 36,167 40,856 55,212 67,737 87,075
--------- --------- --------- --------- ---------
Total net
finance
receivables(5) $2,772,580 $2,600,447 $2,603,533 $2,630,981 $3,156,979
========== ========== ========== ========== ==========
Domestic $2,430,424 $2,247,851 $2,219,520 $2,095,642 $2,452,985
88% 86% 85% 80% 78%
Foreign 342,156 352,596 384,013 535,339 703,994
12% 14% 15% 20% 22%
--------- --------- --------- --------- ---------
Total net finance
receivables(5) $2,772,580 $2,600,447 $2,603,533 $2,630,981 $3,156,979
100% 100% 100% 100% 100%
========== ========== ========== ========== ==========
- -------------
(1)The 1994 increase was due to increased volume in both consumer
electronics and appliances, and home and recreational products.
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 that they hold inventory by using
"just in time" delivery arrangements.
(2)In 1991, the company decided to exit the rent-to-own finance
business and reduce lending to certain asset based lending lines
(formerly included in business credit) resulting 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 have not been restated.
(3)The 1994 increase resulted from a higher level of new business
during the year. 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 to reduce lending to certain
asset based lending lines (see note 2 above regarding
reclassification of receivables outstanding at December 31, 1991).
(4)The decreases since 1991 primarily reflect the liquidation of
receivables from businesses being exited, including write offs in
1994, 1993 and 1992 of $367,000, $18,403,000 and $87,406,000. 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 2 and 3 above).
(5)Outstandings shown above exclude assets held for sale.
---------------
Earned finance charges as a percentage of the average amount of net
finance receivables outstanding during each of the years 1990 through
1994 were 14.7%, 13.3%, 12.1%, 11.3% and 11.8%.
Delinquent Receivables
Effective in 1993, the policy used for determining delinquent
receivables was revised to provide greater consistency among the
commercial lending operation's receivable portfolios. It is
management's view that the new methodology provides a better and more
meaningful assessment of the condition of the portfolios. 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 delinquent 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,
---------------------------------------------
1994 1993 1992 1991 1990
----- ----- ----- ----- -----
Inventory finance(1) 0.11% 0.13% 0.82% 1.31% 3.42%
Business credit(1)(2) - - 0.21 0.88 10.34
----- ----- ----- ----- -----
Core businesses 0.08 0.10 0.68 1.25 5.78
Other(3) 20.63 19.14 22.42 25.84 12.79
----- ----- ----- ----- -----
Total(4) 0.63% 1.02% 2.38% 5.64% 6.65%
===== ===== ===== ===== =====
- -------------
(1)The decreases in 1992 and 1991 reflect write offs of delinquent
accounts (and accounting reclassifications - see note 2 on
preceding table), implementation of stronger portfolio management
procedures and general improvement in the economy.
(2)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. Delinquency data
exclude rent-to-own finance receivables which have beeen
reclassified to assets held for sale. The 1990 data have not been
restated.
(3)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 2 on preceding table).
(4)Delinquency statistics exclude assets held for sale.
-------------------
Nonearning Receivables
Effective in 1993, the policy used for determining nonearning
receivables was revised to provide greater consistency among the
commercial lending operation's receivable portfolios. It is
management's view that the new methodology provides a better and more
meaningful assessment of the condition of the portfolios. 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 $21,872,000 (0.78% of receivables
outstanding) and $31,763,000 (1.20% of receivables outstanding) at
December 31, 1994 and 1993. Those amounts exclude nonearning rent-to-
own finance receivables which have been reclassified to assets held
for sale. During 1994 and 1993, the gross amount of interest income
that would have been recorded on receivables classified as nonearning
at year end was $1,825,000 and $4,649,000 and the amount of interest
on those loans that was recognized in income was $956,000 and
$2,423,000.
Assets Held for Sale
Assets held for sale at December 31, 1994 totaled $10,908,000, net
of a $65,086,000 valuation allowance, and consisted of rent-to-own
finance receivables of $72,381,000 and repossessed assets of
$3,613,000. In 1994, the commercial lending operation sold its U.S.
and Canadian repossessed rent-to-own stores. Assets held for sale at
December 31, 1993 totaled $90,114,000, net of a $156,985,000 valuation
allowance, and comprised 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. At December 31, 1994, $24,495,000
of the rent-to-own finance receivables were classified as both
delinquent and nonearning compared to $27,489,000 at December 31,
1993.
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:
Years Ended December 31,
----------------------------------------------
1994 1993 1992 1991 1990
-------- ------ ------- ------ -------
(Dollar amounts in thousands)
Provision for credit
losses charged
to income(1) $ 18,665 $ 31,793 $ 36,830 $245,190 $131,244
Credit losses (net
of recoveries)(2) $ 8,651 $ 42,710 $117,052 $172,614 $ 95,514
Ratio to average
net finance
receivables outstanding:
Inventory finance 0.28% 1.30% 1.56% 2.86% 2.64%
Business credit 0.44 (0.02) 0.23 13.46 1.79
Insurance finance(3) 0.71
Core businesses 0.32 0.99 1.30 6.17 2.22
Other(4) 0.45 12.93 28.98 6.39 5.55
------- -------- -------- -------- --------
Total(5) 0.32% 1.64% 4.53% 6.19% 2.61%
======== ========= ========= ========= =========
Allowance for losses at
end of year(1) $ 86,574 $ 76,079 $ 87,169 $169,52 $ 99,402
Ratio to net finance
receivables
outstanding(6) 3.12% 2.93% 3.35% 6.44% 3.15%
======== ========= ========= ========= =========
- -----------
(1) The 1991 provision and allowance for losses at December 31,
1991 included $62,816,000 recorded as part of the special charge
recognized as a result of 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, was 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 1994, 1993 and 1992, charges to the allowance for losses on
finance receivables due to credit losses sustained decreased
$34,059,000 (80%), $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
and stronger portfolio management procedures implemented in 1992
and the reclassification of certain receivables to assets held for
sale in 1991. In 1991, credit losses increased $77,100,000 (81%)
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) On July 2, 1990, the insurance finance subsidiaries were
dividended to TFG.
(4) The increase in 1992 resulted mainly from the write off of
delinquent and nonearning receivables that were reclassified to the
"other" category in 1991.
(5) The changes in ratios were due to corresponding fluctuations
in credit losses (see note 2 above).
(6) The 1993 and 1992 reductions were attributable primarily to
the write off of delinquent and nonearning receivables in 1993 and
1992, and to 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 decision to
reduce lending to certain asset based lending lines and to
liquidate receivables remaining from previously sold businesses
(see note 1 above).
---------------
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,
--------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Offices 33 72 108 130 152
Employees 1,648 1,899 1,993 2,114 2,292
The following table sets forth the geographical distribution of the
Company's commercial lending offices at December 31, 1994:
No. of No of.
Offices Offices
------- --------
United States: Canada:
Colorado 1 British Columbia 1
Georgia 2 Ontario 1
Illinois 5 Quebec 1
New York 1 --
North Carolina 1 3
Tennessee 1 Europe:
Texas 2 France 1
Wisconsin 1 Germany 1
-- Netherlands 1
14 United Kingdom 1
-- --
Puerto Rico 12 4
-- --
Total 33
==
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.
1
LEASING OPERATION
General
Transamerica Leasing Inc. leases, services and manages containers,
chassis and trailers around the world. The leasing operation is based in
Purchase, New York and maintains 564 offices, depots and other
facilities in 50 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.
Information concerning the 1994 acquisition for $1,061,441,000 of the
container operations of Tiphook plc by the leasing operations of the
Company is outlined in Note B of Notes to Financial Statements (Item 8).
The acquired fleet of standard containers and tank containers totaled
363,000 units. The initial financing of the acquisition was provided
through short-term bank loans which have been repaid and refinanced
with long-term debt.
In November 1992, the leasing operation sold its domestic over-the-
road trailer business. Proceeds from the sale, which resulted in no
gain or loss, totaled $191,000,000 and were used to reduce debt.
At December 31, 1994, the leasing operation's fleet consisted of
standard containers, refrigerated containers, domestic containers, tank
containers and chassis totaling 685,400 units which are owned or
managed, and leased from 526 depots worldwide; 39,300 rail trailers
leased to all major United States railroads and to roll on/roll off
steamship operators, shippers, shippers' agents and regional truckers;
and 5,700 over-the-road trailers in Europe.
At December 31, 1994 and 1993, 33% and 49% of the standard container,
refrigerated container, domestic container, tank container and chassis
fleet were on term lease or service contract minimum lease for periods
of one to ten years. Also at December 31, 1994 and 1993, 33% and 34% of
the rail trailer fleet were on term lease or service contract minimum
lease for periods of one to five years.
The following table sets forth the leasing operation's fleet size, in
units, for the years indicated:
As of December 31,
------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- ------- ------- ------
Containers and chassis(1) 685,400 316,000 280,000 255,100 244,400
Rail trailers 39,300 36,500 34,400 36,800 40,500
European trailers 5,700 3,800 2,900 1,700 800
- ------------
(1) The 1994 increase was largely due to the acquisition of substantially
all of the operating assets of the container operations of
Tiphook plc and the acquisition of new standard and
refrigerated containers.
----------------
The following table sets forth the leasing operation's fleet
utilization for the years indicated:
Years Ended December 31,
------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Containers and chassis(1) 81% 83% 85% 89% 90%
Rail trailers(2) 92% 91% 84% 75% 79%
European trailers(3) 96% 89% 84% 83% 81%
- ------------
(1) The 1994 and 1993 declines were due to slow economic growth in
key European economies and Japan and, in 1994, the impact of the
Tiphook fleet acquisition. The 1992 decline was due to higher than
expected industry-wide supply of equipment. The 1991 reduction
resulted from a small decline in the rate of growth of world trade
and a less favorable geographic balance of business.
(2) The 1994, 1993 and 1992 increases were primarily due to higher
domestic economic activity and because many shippers continued to
move from trucks to rail transport for long-haul shipments and, in
1993 and 1992, due to a smaller industry fleet. The 1991 decline was
due to reduced domestic economic activity.
(3) The 1994 and 1993 increases were due to a greater number of
units on long term lease and improvement in the economy of the United
Kingdom.
----------------
Revenues of the domestic leasing operation derived from foreign
customers were $440,246,000 in 1994, $210,301,000 in 1993 and
$169,925,000 in 1992, of which European customers accounted for 48%, 41%
and 44%. Revenues of foreign-domiciled leasing operations were less
than 7% of the consolidated total in each of the three years in the
period ended December 31, 1994.
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,
--------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Offices, depots and other
facilities 564 386 386 301 306
Employees 909 765 796 946 1,026
Competition
The Company's leasing subsidiaries operate in a highly competitive
industry, in many cases competing with companies with long established
operating histories and substantial financial resources.
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,
---------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ----------- ----------- -----------
(Dollar amounts in thousands)
Debt:
Unsubordinated debt:
Commercial paper
and other
short-term debt $ 4,277,354 $ 3,669,893 $ 2,813,108 $ 2,714,036 $ 2,804,766
Less classified as
long-term debt 3,672,500 2,505,000 2,813,108 2,714,036 2,790,000
----------- ----------- ----------- ----------- -----------
Total unsubordinated
short-term debt 604,854 1,164,893 14,766
6% 14%
Long-term notes and
debentures 7,125,849 5,170,485 6,032,531 5,920,108 5,535,239
69% 61% 75% 75% 73%
----------- ----------- ----------- ----------- -----------
Total unsubordinated
debt 7,730,703 6,335,378 6,032,531 5,920,108 5,550,005
75% 75% 75% 75% 73%
Subordinated debt 993,555 696,125 557,045 627,698 687,092
10% 8% 7% 8% 9%
----------- ----------- ----------- ----------- -----------
Total debt 8,724,258 7,031,503 6,589,576 6,547,806 6,237,097
85% 83% 82% 83% 82%
Total equity 1,582,341 1,449,621 1,428,936 1,360,051 1,382,872
15% 17% 18% 17% 18%
----------- ----------- ----------- ----------- -----------
Total $10,306,599 $ 8,481,124 $ 8,018,512 $ 7,907,857 $ 7,619,969
100% 100% 100% 100% 100%
============ =========== ========== =========== ===========
Short-term borrowings before reclassification to long-term debt (see
Note C 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, 1994, $932,856,000 of bank credit lines were
available to the Company, $75,000,000 of which were also available to
Transamerica Corporation. At December 31, 1994, all borrowings under
these lines were made by the Company and amounted to $253,651,000. The
cost of short-term borrowings is directly related to prevailing rates of
interest in the money market; such rates are subject to fluctuation.
Interest rates on borrowings during the years indicated were as
follows:
Years Ended December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Weighted average annual
interest rate during year:(1)
Short-term borrowings 4.41% 3.41% 3.93% 6.47% 8.23%
Long-term borrowings 7.69% 8.24% 8.71% 9.77% 9.23%
Total borrowings 6.05% 6.00% 6.87% 8.28% 9.22%
(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,
-------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- -----
Return on assets(1) 1.9% 1.1% 1.9% (1.2)% 1.4%
Return on equity(2) 12.4% 6.9% 11.7% (7.6)% 8.2%
Dividend payout ratio(3) 80.2% 75.2% 55.7% N.A. 136.3%
Equity to assets ratio(4) 15.2% 16.2% 16.2% 16.2% 16.7%
- --------------
(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.
----------------
Consolidated Ratios of Earnings to Fixed Charges
The following table sets forth the consolidated ratios of earnings to
fixed charges for the years indicated. The ratios were computed by
dividing income 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,
------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Ratio of earnings to fixed
charges 1.62 1.50 1.59 0.77 1.28
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 2004 at an annual rental of
approximately $1,500,000. The Company and its subsidiaries have
noncancelable lease agreements expiring mainly through 1999. These
agreements are principally operating leases for facilities used in the
Company's operations.
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 expected to have a
material effect on the consolidated financial position or results of
operations of the Company and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted in accordance with General Instruction 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.
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 Asset Purchase Agreement dated as of February 13, 1994 between
Transamerica Container Acquisition Corporation and Tiphook plc
and certain of its affiliated companies (incorporated by
reference to Exhibit 2 to Registrant's Form 10-K Annual Report
(File No. 1-6798) for the year ended December 31, 1993).
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
(incorporated by reference to Exhibit 2.1 to Registrant's Form 10-
K Annual Report (File No. 1-6798) for the year ended December 31,
1993).
EX-3(i) 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 - February 19, 1991.
EX-4 Indenture dated as of April 1, 1991 between Registrant and Harris
Trust and Savings Bank, as Trustee (incorporated by reference to
Exhibit 4.1 to Registrant's Registration Statement on Form S-3
(File No. 33-40236) as filed with the Commission on August 16, 1991).
EX-10.1 Lease dated December 1, 1994 between Transamerica Occidental
Life Insurance Company, as lessor, and Registrant, as lessee.
EX-10.2 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-10.3 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 LLP to the incorporation by reference of
their report dated February 15, 1995 in the Registrant's
Registration Statements on Form S-3, File Nos. 33-40236 and 33-
49763.
EX-27 Financial Data Schedule.
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 1994:
None.
(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.
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 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 28, 1995 by the following
persons on behalf of the registrant and in the capacities indicated.
Signature Title
--------- -----
Principal Executive Officer and Director:
RICHARD H. FINN Chief Executive Officer and Director
- --------------------------
(Richard H. Finn)
Principal Financial Officer and Director:
DAVID H. HAWKINS Senior Vice President, Treasurer and
- --------------------------- Director
(David H. Hawkins)
Principal Accounting Officer:
RAYMOND A. GOLAN
- --------------------------
(Raymond A. Golan) Vice President and Controller
Directors:
DAVID R. CARPENTER
- --------------------------
(David R. Carpenter) Director
RUSSELL T. CHARLTON
- --------------------------
(Russell T. Charlton) 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
STEVEN A. READ
- --------------------------
(Steven A. Read) Director
CHARLES E. TINGLEY
- --------------------------
(Charles E. Tingley) Director
(THIS PAGE INTENTIONALLY LEFT BLANK)
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, 1994
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
LOS ANGELES, CALIFORNIA
(THIS PAGE INTENTIONALLY LEFT BLANK)
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, 1994 and 1993
Consolidated Statement of Income -- Years ended December 31, 1994,
1993 and 1992
Consolidated Statement of Cash Flows -- Years ended December 31,
1994, 1993 and 1992
Consolidated Statement of Shareholder's Equity -- Years ended
December 31, 1994, 1993 and 1992
Notes to Financial Statements
Management's Discussion and Analysis of the Results of Operations -
- Year ended December 31, 1994
Supplementary Financial Information -- Years ended December 31, 1994
and 1993
The following consolidated financial statement schedule of Transamerica
Finance Corporation and subsidiaries is included in Item 14(d):
II - Valuation and Qualifying Accounts -- Years ended December 31,
1994, 1993 and 1992
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.
REPORT OF ERNST & YOUNG LLP, 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,
1994 and 1993, and the related consolidated statements of income, cash
flows, and shareholder's equity for each of the three years in the
period ended December 31, 1994. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and schedule 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
and related schedule are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements and related schedule. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Transamerica Finance Corporation and subsidiaries at
December 31, 1994 and 1993, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
ERNST & YOUNG LLP
Los Angeles, California
February 15, 1995
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Amounts in thousands, except for share data)
December 31 1994 1993
---------- ----------
ASSETS
Cash and cash equivalents $ 7,719 $ 29,321
Investments - available for sale 113,159 110,078
Finance receivables, net of unearned finance
charges and insurance premiums:
Consumer lending 4,141,986 3,650,523
Commercial lending 2,772,580 2,600,447
__________ __________
Net finance receivables 6,914,566 6,250,970
Less allowance for losses 203,792 179,392
__________ __________
6,710,774 6,071,578
Property and equipment - less accumulated
depreciation of $735,451 in 1994 and $605,548
in 1993: 47,392 43,784
Land, buildings and equipment
Equipment held for lease 2,606,578 1,306,458
Investments in and advances to affiliates 259,639 371,012
Goodwill, less accumulated amortization of $109,909
in 1994 and $98,252 in 1993 351,562 372,368
Assets held for sale 225,036 386,300
Less valuation allowance 67,368 159,532
__________ __________
157,668 226,768
Other assets 700,313 500,003
__________ __________
$10,954,804 $ 9,031,370
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Debt:
Unsubordinated $7,730,703 $ 6,335,378
Subordinated 993,555 696,125
__________ __________
Total debt 8,724,258 7,031,503
Accounts payable and other liabilities 541,210 483,939
Income taxes payable, of which $47,696 in 1994 and
$168,132 in 1993 is deferred 106,995 66,307
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, 1,464,285 shares 14,643 14,643
Additional paid-in capital 1,455,717 1,356,533
Retained earnings 124,347 87,105
Net unrealized loss from investments marked to
fair value (3,272)
Foreign currency translation adjustments (9,094) (8,660)
__________ __________
Total shareholder's equity 1,582,341 1,449,621
__________ __________
$10,954,804 $ 9,031,370
=========== ===========
See notes to financial statements
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands)
Years Ended December 31 1994 1993 1992
---------- ---------- ----------
REVENUES
Finance charges $ 986,433 $ 929,464 $ 946,687
Leasing revenues 620,680 388,327 402,230
Servicing fees 308 942 1,795
Income from affiliates 17,193 18,021 21,248
Other 53,213 55,372 58,923
__________ __________ __________
Total revenues 1,677,827 1,392,126 1,430,883
__________ __________ __________
EXPENSES
Interest and debt expense 485,643 414,556 459,518
Depreciation on equipment held for
lease 197,295 102,538 98,789
Salaries and other operating
expenses 582,025 512,652 504,037
Provision for losses on
receivables 99,071 94,142 84,815
Provision for losses on assets
held for sale 50,000
__________ __________ __________
Total expenses 1,364,034 1,173,888 1,147,159
__________ __________ __________
Income before income taxes
and extraordinary item 313,793 218,238 283,724
Income taxes 125,551 95,357 121,052
__________ __________ __________
Income before extraordinary item 188,242 122,881 162,672
Extraordinary loss on early
extinguishment of debt, net of
applicable income tax benefit of
$11,447 (23,084)
__________ __________ __________
Net income $ 188,242 $ 99,797 $ 162,672
========== ========== ==========
See notes to financial statements
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands)
Years Ended December 31 1994 1993 1992
------------ ------------ ------------
OPERATING ACTIVITIES
Net income $ 188,242 $ 99,797 $ 162,672
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization of
goodwill 223,044 126,513 124,680
Provision for losses on receivables 99,071 94,142 84,815
Provision for losses on assets held
for sale 50,000
Amortization of discount on long-
term debt 19,292 30,419 49,681
Change in accounts payable and other
liabilities (25,254) (75,151) 20,292
Change in income taxes payable 40,688 (18,747) 48,143
Extraordinary loss on early
extinguishment of debt 23,084
Other 94,329 138,676 (139,953)
------------ ------------ ------------
Net cash provided by operating 639,412 468,733 350,330
activities
------------ ------------ ------------
INVESTING ACTIVITIES
Finance receivables
originated or purchased (15,594,856) (11,756,552) (9,714,701)
Finance receivables collected or sold 14,807,548 11,535,766 9,415,231
Purchase of property and equipment (455,353) (424,187) (349,305)
Sales of property and equipment 31,336 55,760 44,708
Purchase of investments (15,375) (35,953) (28,713)
Sales or maturities of investments 9,022 23,523 25,766
Decrease (increase) in investments in
and advances to affiliates 111,373 (80,772) 19,847
Purchase of the container division
assets of Tiphook plc (1,061,441)
Sale of domestic over-the-road
trailer business 191,000
Other (102,807) (109,831) (1,238)
------------ ------------ ------------
Net cash used by investing (2,270,553) (792,246) (397,405)
activities
------------ ------------ ------------
FINANCING ACTIVITIES
Proceeds from debt financing 7,189,405 5,500,571 4,100,077
Payments of debt (5,528,050) (5,112,147) (4,107,988)
Capital contributions from parent
company 99,184 3,915 103,955
Cash dividends paid (151,000) (100,000) (74,600)
------------ ------------ ------------
Net cash provided by financing
activities 1,609,539 292,339 21,444
------------ ------------ ------------
Decrease in cash and cash equivalents (21,602) (31,174) (25,631)
Cash and cash equivalents at
beginning of year 29,321 60,495 86,126
------------ ------------ ------------
Cash and cash equivalents at end of
year $ 7,719 $ 29,321 $ 60,495
============ ============ ============
See notes to financial statements
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(Amounts in thousands)
Net
Unrealized
Gain (Loss)
From Foreign
Additional Retained Investments Currency
Capital Paid- Earnings Marked To Translation
Stock In Capital (Deficit) Fair Value Adjustments
------- ---------- ---------- ----------- ------------
Balance at January 1,
1992 $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)
Effect of adopting
Statement of Financial
Accounting Standards
No. 115 5,581
Net income 188,242
Capital contribution
from parent company 99,184
Cash dividends declared (151,000)
Other changes (8,853) (434)
---------- ---------- ---------- ---------- -------
Balance at December 31,
1994 $14,643 $1,455,717 $124,347 $(3,272) $(9,094)
========== ========== ========== ========== =======
See notes to financial statements
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.
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.
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. Intangible assets other than goodwill,
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 Income 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
H and K, 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.
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 contractually in excess of 29 days for consumer loans or 60 days
for commercial loans. At December 31, 1994 and 1993, finance
receivables for which the accrual of finance charges was suspended
amounted to $216,144 and $188,305. 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 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 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 consolidated financial
statements.
New Accounting Standards - In 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Beginning in 1994 with the
adoption of this standard, all of the Company's investments have been
classified as available for sale and reported at fair value. The
effect of this adjustment, net of federal income taxes, is recorded in
a separate component of shareholder's equity. There is no effect on
the consolidated income statement.
In May 1993, the Financial Accounting Standards Board issued a new
standard on accounting for impairment of loans which the Company will
adopt in the first quarter of 1995. The new standard, which was
amended in October 1994, 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. At adoption, the new standard will not have a material
effect on the consolidated financial statements of the Company.
Note B - Acquisitions
In March 1994, the Company acquired substantially all the operating
assets of the Container Operations of Tiphook plc ("Tiphook"), a London-
based transportation equipment rental company, including certain dry
cargo containers, tank containers, tank chassis, operating leases and
other assets (collectively the "Container Operations") for $1,061,441
in cash. The Company assumed certain specified liabilities of the
Container Operations including trade accounts payable. The Company did
not assume any borrowings, tax liabilities or contingent liabilities of
Tiphook. The acquired fleet of standard containers and tank containers
totaled 363,000 units. The acquisition has been accounted for as a
purchase and, accordingly, the operations of Tiphook have been included
in the Consolidated Statement of Income from the date of acquisition.
Had the acquisition of the Container Operations been accomplished as of
January 1, 1993, revenues for the Company would have been approximately
$1,720,000 and $1,640,000 for the years ended December 31, 1994 and
1993. The pro forma effect on net income would have been immaterial.
This information is for illustrative purposes only and is not
necessarily indicative of the future results of the operations of the
combined company, or of the results of the operations of the combined
company that would have actually occurred had the transaction been in
effect for the periods presented.
Note C - Financial Instruments
Investments
In 1994, investments in fixed maturities are carried at fair value,
while in 1993, these investments were carried at amortized cost which
was less than fair value. The cost and fair value of investments at
December 31, 1994 and 1993 are as follows:
Gross Gross
Unrealized Unrealized
Cost Gains Losses Fair Value
--------- --------- ---------- -----------
December 31, 1994:
Fixed maturities $113,271 $1,253 $6,287 $108,237
Short-term
investments 4,922 4,922
--------- --------- --------- ---------
Total $118,193 $1,253 $6,287 $113,159
======== ======== ======== ========
December 31, 1993:
Fixed maturities $103,035 $9,212 $626 $111,621
Short-term
investments 7,043 7,043
--------- --------- --------- ---------
Total $110,078 $9,212 $626 $118,664
======== ======== ======== ========
Investments totaling $4,225 at December 31, 1994 and $4,175 at December
31, 1993 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 ($37,250 and $36,069 at December 31, 1994 and 1993) in 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.
The net unrealized loss included in shareholder's equity as a result of
marking the fixed maturities to fair value at December 31, 1994 was
$3,272.
Finance Receivables
The carrying amounts and estimated fair values of the finance
receivable portfolio at December 31, 1994 and 1993 are as follows:
1994 1993
------------------------ -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----------- -------- ---------- --------
Fixed rate receivables:
Consumer $4,024,768 $4,500,191 $3,547,210 $4,307,048
Commercial 125,950 128,659 134,040 132,662
Variable rate receivables:
Commercial 2,560,056 2,560,056 2,390,328 2,390,328
----------- ----------- ----------- ----------
Total $6,710,774 $7,188,906 $6,071,578 $6,830,038
========== ========== ========== ==========
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)
-------------------- -----------------
1994 1993 1994 1993
-------- -------- -------- ------
Consumer:
Consumer instalment loans:
Real estate secured $3,522,966 $3,214,468 180 180
Other 758,798 595,284 60 60
Other finance receivables 58,197 22,276 36 36
---------- ----------
4,339,961 3,832,028
Less unearned finance charges and
insurance premiums 197,975 181,505
---------- ----------
Net finance receivables 4,141,986 3,650,523
---------- ----------
Commercial:
Inventory finance 2,078,519 1,959,757 12 12
Business credit 654,966 553,859 60 60
---------- ----------
Core businesses 2,733,485 2,513,616
Other 75,262 127,687 180 180
---------- ----------
2,808,747 2,641,303
Less unearned finance charges 36,167 40,856
---------- ----------
Net finance receivables 2,772,580 2,600,447
---------- ----------
Total net finance receivables $6,914,566 $6,250,970
========== ==========
Contractual maturities of finance receivables outstanding, before
deduction of unearned finance charges and insurance premiums, at
December 31, 1994 are:
Consumer % Commercial % Total %
----------- ----- ---------- ------ --------- -----
1995 $ 848,177 19.6 $2,337,304 83.2 $3,185,481 44.6
1996 665,008 15.3 244,503 8.7 909,511 12.7
1997 552,265 12.7 221,946 7.9 774,211 10.8
1998 397,114 9.2 2,870 0.1 399,984 5.6
1999 292,057 6.7 2,074 0.1 294,131 4.1
Thereafter 1,585,340 36.5 50 1,585,390 22.2
---------- ----- --------- ----- ---------- -----
Total $4,339,961 100.0 $2,808,747 100.0 $7,148,708 100.0
========== ===== ========== ===== ========== ======
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 1994
and 1993, the ratio for consumer finance receivables of principal cash
collections (excluding balances refinanced) to average net finance
receivables was 28% and 29%.
The commercial lending operation's business credit unit provides
revolving lines of credit, letters of credit and standby letters of
credit. At December 31, 1994 and 1993, borrowers' unused credit
availability under such arrangements totaled $535,214 and $533,781, and
the estimated amount the Company would have to pay another financial
institution to assume the possible future obligation to fund them was
$1,339 and $1,591.
Concentration of Risk
During the normal conduct of its consumer and commercial lending
operations, the Company engages in the extension of credit to
homeowners, electronics and appliance dealers, retail recreational
products dealers, computer stores 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 consumer finance receivables at December 31, 1994
included $3,349,235, 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 45%
are located in California. The commercial finance receivables portfolio
represents lending arrangements with over 100,000 customers. At
December 31, 1994, the portfolio included 18 customers with individual
balances in excess of $15,000. These accounts represented 12% of total
commercial net finance receivables outstanding at December 31, 1994.
Debt
Debt consists of:
1994 1993
---------- -----------
Unsubordinated
Short-term debt:
Commercial paper $4,181,211 $3,585,249
Other 96,143 84,644
----------- -----------
4,277,354 3,669,893
Less classified as long-term debt 3,672,500 2,505,000
----------- -----------
Total unsubordinated short-term debt 604,854 1,164,893
----------- -----------
Long-term debt:
Short-term debt supported by noncancelable
credit agreements 3,672,500 2,505,000
4.48% to 9.10% notes and debentures due 1995 to
2004 3,299,173 2,323,110
Loans due to Transamerica Corporation and its
subsidiaries, at various interest rates, maturing
in 1994 67,491
Zero to 6.50% notes and debentures due 2007 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
$582,760 154,176 274,884
----------- -----------
Total unsubordinated long-term debt 7,125,849 5,170,485
----------- -----------
Total unsubordinated debt 7,730,703 6,335,378
----------- -----------
Subordinated
6.75% to 11.00% notes due 1995 to 2003 993,555 696,125
----------- -----------
Total debt $8,724,258 $7,031,503
========== ==========
The weighted average interest rate on short-term borrowings at December
31, 1994 and 1993 was 5.80% and 3.17%.
Long-term debt outstanding at December 31, 1994, other than the
$3,672,500 supported by noncancelable credit agreements, matures as
follows:
Unsubordinated Subordinated Total
-------------- ------------- ------------
1995 $821,891 $152,400 $974,291
1996 653,594 157,575 811,169
1997 682,614 102,100 784,714
1998 258,215 250,480 508,695
1999 509,510 202,000 711,510
Thereafter 527,525 129,000 656,525
---------- ---------- -----------
Total $3,453,349 $993,555 $4,446,904*
========== ========= ===========
*Includes the accreted values at December 31, 1994 on original issue
discount debt and not the amount due at maturity.
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, 1994 and 1993, $192,000
and $200,000 of the outstanding commercial paper, which matured on
demand in 1995 and January 24, 1994, was held by Transamerica
Corporation. In support of its commercial paper operations, bank
credit lines aggregating $932,856 at December 31, 1994 were available
to the Company, $75,000 of which were also available to Transamerica
Corporation. At December 31, 1994, all borrowings under these lines
were made by the Company and amounted to $253,651, of which $157,508 is
long-term.
In support of the short-term debt classified as long-term debt at
December 31, 1994, the Company has unsubordinated noncancelable credit
agreements totaling $4,325,000 with 58 banks, of which $3,672,500
matures after one year. A total of $700,000 thereof is also available
to Transamerica Corporation. Fees are paid on the average unused
commitment.
Interest payments, net of amounts received from interest rate exchange
agreements, totaled $561,874 in 1994, $513,541 in 1993 and $558,997 in
1992.
The estimated fair value of debt, using rates currently available for
debt with similar terms and maturities, at December 31, 1994 and 1993
was $8,644,000 and $7,407,000.
Derivatives
The operations of the Company are subject to risk of interest rate
fluctuations to the extent that there is a difference between the cash
flows from the Company's interest-earning assets and the cash flows
related to its liabilities that mature or are repriced in specific
periods. In the normal course of its operations, the Company hedges
some of its interest rate risk with derivative financial instruments.
These derivatives comprise primarily interest rate swap agreements.
The interest rate swap agreements are intended to help the Company to
more closely match the cash flow received from its assets to the
payments on its liabilities. The Company's interest rate swap
agreements generally provide that one party pays interest at a floating
rate in relation to movements in an underlying index and the other
party pays interest at a fixed rate.
The interest rate swap contracts are designated and accounted for as
hedges of a portion of the Company's outstanding indebtedness.
At December 31, 1994, contracts designated as hedges of outstanding
indebtedness comprise:
Weighted Weighted
Average Average
Fixed Floating
Notional Interest Interest
Amount Rate Rate
-------- -------- ---------
Interest rate swap agreements - The
Company pays:
Floating rate interest expense,
receives fixed rate
interest income $103,000 7.7% 7.0%
======== ==== =====
Fixed rate interest expense,
receives floating rate
interest income $540,100 6.6% 5.9%
======== ==== =====
Floating rate interest expense
based on one index (5.9%)
and receives floating rate
interest income based on
another index (5.8%) $101,000
========
The net present value of these interest rate swap agreements offsets
changes in the fair value of the hedged indebtedness, which are also
carried at amortized cost. The fair value of the liability hedges at
December 31, 1994 was a net benefit from counterparties of $10,645.
While the Company is exposed to credit risk in the event of
nonperformance by the other party, nonperformance is not anticipated
due to the credit rating of the counterparties. At December 31, 1994,
the interest rate swap agreements are with banks rated A or better by
one or more of the major credit rating agencies.
Note D - Allowance for Losses
Changes in the allowance for losses on finance receivables are:
Consumer Commercial Total
--------- ---------- --------
Balance at January 1, 1992 $ 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
Provision charged to income 80,406 18,665 99,071
Receivables charged off (74,870) (17,038) (91,908)
Recoveries 2,375 8,387 10,762
Other 5,994 481 6,475
----------- ----------- -----------
Balance at December 31, 1994 $117,218 $86,574 $203,792
========== ========== ==========
Note E - Assets Held for Sale
Assets held for sale are:
1994 1993
-------- -------
Consumer:
Repossessed residential properties $145,633 $137,455
Other repossessed assets 3,409 1,746
--------- ---------
149,042 139,201
Less valuation allowance 2,282 2,547
--------- ---------
146,760 136,654
--------- ---------
Commercial:
Rent-to-own finance receivables 72,381 120,469
Repossessed rent-to-own stores 107,227
Other repossessed assets 3,613 19,403
--------- ---------
75,994 247,099
Less valuation allowance 65,086 156,985
--------- ---------
10,908 90,114
--------- ---------
Total $157,668 $226,768
======== ========
In 1993, a provision of $50,000 ($35,960 after tax) was made to reduce
the net carrying value of repossessed rent-to-own stores to their
estimated realizable value. In September 1994, the commercial lending
operation sold its U.S. and Canadian repossessed rent-to-own stores
with a net carrying value of $17,666 for $22,939. The transaction resulted
in a $5,273 ($3,980 after tax) gain.
Note F - Dividend and Other Restrictions
Consolidated equity is restricted by the provisions of debt agreements.
At December 31, 1994, $237,224 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, 1994, $58,481 is so restricted.
Note G - Income Taxes
The provision for income taxes comprises:
1994 1993 1992
------- ------- --------
Current taxes:
Federal $71,514 $41,617 $95,239
State 18,023 15,354 18,391
Foreign 6,529 88 (14,637)
-------- -------- --------
96,066 57,059 98,993
-------- -------- --------
Deferred taxes:
Federal 31,544 32,461 588
State 1,859 5,034 6,533
Foreign (3,918) 803 14,938
-------- -------- --------
29,485 38,298 22,059
-------- -------- --------
Total income taxes $125,551 $ 95,357 $121,052
======== ======== ========
The difference between federal income taxes computed at the statutory
rate and the total provision for income taxes is:
1994 1993 1992
---------- --------- ---------
Federal income taxes at statutory
rate $109,828 $76,383 $96,467
State income taxes, net of
federal income tax benefit 12,978 13,913 16,449
Book and tax basis difference of
assets acquired 4,053 2,999 5,026
Settlement of disputed items (4,904) (4,224)
Dividends from affiliates (663)
Other 3,596 6,286 3,773
--------- --------- ---------
Total income taxes $125,551 $95,357 $121,052
======== ======== ========
Deferred tax liabilities (assets) are comprised of the following at
December 31:
1994 1993
Depreciation $319,949 $232,652
Amortization of bond discount and
interest 65,790 66,071
Direct finance and sales type leases 21,942 7,865
Insurance reserves and acquisition costs 7,136 9,698
Other 29,248 35,475
--------- ---------
Gross deferred tax liabilities 444,065 351,761
--------- ---------
Allowances for losses on finance
receivables and other assets (121,273) (113,331)
Post employment benefits other than
pensions (8,393) (8,166)
Net operating loss and foreign tax credit
carryforwards (244,817) (46,139)
Other (21,886) (15,993)
--------- ---------
Gross deferred tax assets (396,369) (183,629)
--------- ---------
Net deferred tax liability $ 47,696 $168,132
========= =========
Pretax income (loss) from foreign operations totaled $(332) in 1994,
$3,686 in 1993 and $4,332 in 1992. Income tax payments totaled $87,098
in 1994, $77,089 in 1993 and $92,190 in 1992.
Note H- 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 $9,447 in 1994, $9,163 in 1993 and $7,913 in 1992.
The Company also participates in various programs sponsored by
Transamerica Corporation that provide medical and certain other
benefits to eligible retirees.
Note I - Commitments and Contingencies
The Company and its subsidiaries have noncancelable lease agreements
expiring mainly through 1999. These agreements are principally
operating leases for facilities used in the Company's operations.
Total rental expense amounted to $67,193 in 1994, $54,799 in 1993 and
$60,286 in 1992.
Contingent liabilities arising from litigation, income taxes and other
matters are not expected to have a material effect on the consolidated
financial position or results of operations of the Company and its
subsidiaries.
Note J - Business Segment Information
Business segment information is:
Revenues Operating Profit
---------------------------------- ------------------------------------
1994 1993 1992 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
Consumer
lending $688,608 $651,218 $654,078 $159,740 $172,593 $181,676
Commercial
lending 350,639 333,297 356,275 62,924 (31,074) 25,536
Leasing 637,904 407,774 420,512 101,890 91,470 92,073
Other 676 (163) 18 518 407 (1,370)
---------- ---------- ---------- ---------- ---------- ----------
$1,677,827 $1,392,126 $1,430,883 325,072 233,396 297,915
========== ========== ==========
Corporate expense (11,279) (15,158) (14,191)
Income taxes (125,551) (95,357) (121,052)
---------- ---------- ----------
Income before extraordinary item $188,242 $122,881 $162,672
========= ========= =========
Assets Liabilities
1994 1993 1992 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
Consumer
lending $4,478,101 $3,985,720 $3,846,327 $3,930,693 $3,511,823 $3,402,670
Commercial
lending 3,324,967 3,461,316 3,513,760 2,695,733 2,836,763 2,882,617
Leasing 3,184,195 1,696,983 1,339,751 2,786,654 1,417,965 1,094,730
Other 33,945 143,321 110,386 25,787 67,731 1,271
Consolidation
adjustments (66,404) (255,970) (121,330) (66,404) (252,533) (121,330)
---------- ---------- ---------- ---------- ---------- ----------
Total $10,954,804 $9,031,370 $8,688,894 $9,372,463 $7,581,749 $7,259,958
=========== ========== ========== ========== ========== ==========
Additions, at Cost,
to Property & Equipment Depreciation Expense
--------------------------------- -----------------------------------
1994 1993 1992 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
Consumer
lending $4,168 $6,169 $5,316 $3,933 $3,525 $ 2,607
Commercial
lending 4,872 6,992 6,938 5,732 5,396 7,538
Leasing 1,525,344 411,026 337,051 201,722 105,852 102,805
Other 82 74
---------- ---------- ---------- ---------- ---------- ----------
Total $1,534,384 $424,187 $349,305 $211,387 $114,855 $113,024
========== ======== ======== ======== ======== ========
Note K - Transactions With Affiliates
On November 1, 1990, the Company sold without recourse a pool of real
estate secured receivables to Transamerica Financial Services Finance
Co. (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 was deferred and was 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 continued
to service these receivables for a fee. The Company entered into an
agreement whereby it directed the investment of excess funds in the
pool pending their distribution and guaranteed that such funds would be
invested at a certain minimum rate. In 1994, the Company repurchased
the remaining serviced receivables and the operations of TFSFC
ceased.
Investments in and advances to affiliates consist of the following at
December 31:
1994 1993
---------- ---------
Unsecured receivable from BWAC Twelve, Inc. $225,694 $308,858
Unsecured receivable from Transamerica
HomeFirst, Inc. 33,945 7,937
Preferred stock of TFSFC 72,946
Unamortized deferred gain on sale of
receivables to TFSFC (18,729)
--------- ---------
Total $259,639 $371,012
======== ========
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 4.98% in 1994, 4.21% in 1993 and 4.04% in 1992. Under
the terms of certain debt agreements, the Company may maintain
investments in and advances to affiliates up to $782,341 at
December 31, 1994.
Income from affiliates comprises the following for the years ended
December 31:
1994 1993 1992
------- ------ ------
Interest income $11,085 $11,572 $13,486
Servicing fees 585 833 861
Amortization of deferred gain and
equity in earnings of TFSFC 5,523 5,616 6,901
-------- -------- --------
Total $17,193 $18,021 $21,248
======= ======= =======
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:
Revenues Income (Loss)
--------------------- ------------------
1994 1993 1994 1993
--------- -------- ----- ------
(Amounts in thousands)
Consumer lending $ 688,608 $ 651,218 $ 89,765 $ 91,742
Commercial lending 350,639 333,297 46,276 (12,775)
Leasing 637,904 407,774 63,552 53,641
Unallocated items 676 (163) 306 1,931
Amortization of goodwill (11,657) (11,658)
---------- ---------- -------- --------
Total $1,677,827 $1,392,126 $188,242 $122,881
========== ========== ======== ========
The following discussion should be read in conjunction with the
information presented under Item 1, Business.
Consumer Lending
Consumer lending net income for 1994 was $89,674,000 compared to
$91,651,000 for 1993. Consumer lending income before the
amortization of goodwill in 1994 decreased $1,977,000 (2%) from
1993. Excluding a $5,269,000 benefit ($3,088,000 after tax)
recorded in 1993 from the reversal of reserves related to a 1990
sale of receivables to Transamerica Financial Services Finance Co.
which subsequently were securitized, income for 1994 increased
$1,111,000 (1%). The increase resulted from higher revenues offset
in part by increased operating and interest expenses, and an
increased provision for losses on receivables. Revenues in 1994
increased $37,390,000 (6%) over 1993 mainly due to increased
finance charges resulting from higher average finance receivables
outstanding and higher fees due to an increased volume of real
estate secured loans.
Interest expense for 1994 increased $8,454,000 (3%) from 1993
mainly due to an increase in short-term rates and the cost of
increased borrowings as a result of the higher level of receivables
outstanding. Operating expenses for 1994 increased $19,853,000
(11%) over 1993. Excluding the $5,269,000 reserve reversal
recorded in 1993, operating expenses in 1994 increased $14,584,000
(8%). The increase was mainly due to the higher level of finance
receivables outstanding, an increase in the average number of
branches during 1994, and costs of developing new loan information
systems to handle additional loan products.
The provision for losses on receivables for 1994 increased
$18,057,000 (29%) due to increased credit losses and increased
growth in net finance receivables over 1993. Credit losses, net of
recoveries, as a percentage of average consumer finance receivables
outstanding, net of unearned finance charges and insurance
premiums, were 1.90% for 1994 compared to 1.67% for 1993. Credit
losses increased in 1994 mainly due to continued sluggishness in
the California economy and a continued weak California real estate
market. Any change in the trend of credit losses is somewhat
dependent upon overall changes in economic conditions and the
California real estate market. Although recent trends in the
economy are encouraging, the outlook for the California real estate
market remains uncertain, particularly in Southern California.
Net consumer finance receivables outstanding increased
$491,463,000 (13%) in 1994. Net consumer finance receivables at
December 31, 1994 included $3,349,235,000 of real estate secured
loans, principally first and second mortgages secured by
residential properties, of which 45% 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 loan origination.
Delinquent finance receivables, which are defined as receivables
contractually past due 60 days or more, were $90,232,000 (2.08% of
finance receivables outstanding) at December 31, 1994 compared to
$76,781,000 (2.00% of finance receivables outstanding) at December
31, 1993. The increase in the percentage reflects higher
delinquent non-real estate secured receivables offset in part by a
decline in the percentage of delinquent real estate secured
receivables. The increase in delinquent non-real estate secured
receivables reflects the changing mix of products in the portfolio
and the introduction of new products with higher delinquency
experience. Management has established an allowance for losses
equal to 2.83% of net consumer finance receivables outstanding at
December 31, 1994 and 1993.
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 $226,119,000 at December 31, 1994
compared to $214,665,000 at December 31, 1993. The increase
primarily reflects higher inventory in California due to
California's continuing weak real estate market and resultant
longer disposal times. Since future improvement may be impacted by
factors such as economic conditions and the state of the real
estate market, the extent and timing of any change in the trend of
foreclosures and repossessed assets remains uncertain.
Commercial Lending
Commercial lending net income for 1994 was $36,762,000 compared
to a net loss of $45,374,000 for 1993. Commercial lending results,
before the amortization of goodwill and a $23,084,000 after tax
extraordinary loss on early extinguishment of debt in 1993,
increased $59,051,000 over 1993. Results for 1993 included: (i) 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; (ii) an $8,799,000 after tax charge for the
restructuring of the commercial lending unit's infrastructure;
(iii) a $4,224,000 after tax provision for anticipated legal and
other costs associated with the runoff of the liquidating
portfolios; (iv) a $4,224,000 tax benefit from the resolution of
prior years' tax matters; and (v) a tax benefit of $1,455,000 due
to the one percent federal tax increase applied to deferred taxes.
Excluding these items and the 1993 extraordinary loss on early
extinguishment of debt, commercial lending income increased
$15,747,000 (52%) over 1993. This improvement was primarily due to
a lower provision for losses on receivables and stronger margins
during 1994. Stronger margins were a result of the higher spread
between the indices at which the commercial lending operation lent
to customers and the indices at which funds were borrowed.
Revenues in 1994 increased $17,342,000 (5%) over 1993 as a result
of increased average net receivables in the core businesses and a
higher average portfolio yield attributable to rising interest
rates.
Interest expense increased $9,616,000 (9%) in 1994 over 1993 due
to a higher average interest rate on borrowings. Operating
expenses in 1994 were $23,143,000 (14%) lower than 1993 due to the
previously described 1993 restructuring charge and provision for
anticipated legal and other costs associated with the runoff of the
liquidating portfolios, aggregating $21,500,000 ($13,023,000 after
tax). Expenses in 1994 included a $8,967,000 ($5,450,000 after
tax) charge for the relocation of the commercial lending home
office, partially offset by the gain described below on the sale of
the repossessed rent-to-own stores. In 1994, the commercial
lending operation sold its U.S. and Canadian repossessed rent-to-
own stores with a net carrying value of $17,666,000 for
$22,939,000. The transaction resulted in a $5,273,000 ($3,980,000
after tax) gain. Excluding the items discussed above, operating
expenses decreased $5,337,000 (4%) in 1994 from 1993, primarily due
to reduced expenses related to the management of the liquidating
portfolios.
The provision for losses on receivables in 1994 was $13,128,000
(41%) less than in 1993 due to lower credit losses and lower
delinquent and nonearning receivables. Credit losses, net of
recoveries, as a percentage of average commercial finance
receivables outstanding, net of unearned finance charges, were
0.32% in 1994 compared to the 1.64% in 1993.
Net commercial finance receivables outstanding increased
$172,133,000 (7%) in 1994. In the core businesses of inventory
finance and business credit, receivables increased $215,669,000
(9%), which more than offset the decline in the liquidating
portfolios. Management has established an allowance for losses
equal to 3.12% of net commercial finance receivables outstanding at
December 31, 1994 compared to 2.93% at December 31, 1993.
Delinquent receivables, which are 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, were $17,736,000 (0.63% of receivables outstanding) at
December 31, 1994 compared to $26,940,000 (1.02% of receivables
outstanding) at December 31, 1993.
Nonearning receivables, which are defined as balances from
borrowers that are over 90 days delinquent or at such earlier time
as full collectibility becomes doubtful, were $21,872,000 (0.78% of
receivables outstanding) at December 31, 1994 compared to
$31,763,000 (1.20% of receivables outstanding) at December 31,
1993.
Assets held for sale at December 31, 1994 totaled $10,908,000,
net of a $65,086,000 valuation allowance, and consisted of rent-to-
own finance receivables of $72,381,000 and repossessed assets of
$3,613,000. Assets held for sale at December 31, 1993 totaled
$90,114,000, net of a $156,985,000 valuation allowance, and
comprised 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. At December 31, 1994,
$24,495,000 of the rent-to-own finance receivables were classified
as both delinquent and nonearning compared to $27,489,000 at
December 31, 1993.
Leasing
In March 1994, the leasing operation acquired substantially all
the operating assets of the Container Operations of Tiphook plc
("Tiphook"), a London-based transportation equipment rental
company, including certain dry cargo containers, tank containers,
tank chassis, operating leases and other assets (collectively the
"Container Operations") for $1,061,441,000 in cash. The leasing
operation assumed certain specified liabilities of the Container
Operations including trade accounts payable. The leasing operation
did not assume any borrowings, tax liabilities or contingent
liabilities of Tiphook. The acquired fleet of standard containers
and tank containers totaled 363,000 units which have been
integrated into the leasing operation. The transaction has been
accounted for as a purchase and the revenues and expenses
associated with operating the assets acquired have been included in
the results of the leasing operation from the date of acquisition.
This acquisition is the primary reason revenues and expenses
increased by more than 50% in 1994.
Leasing net income for 1994 was $61,500,000 compared to
$51,589,000 for 1993. Leasing income, before the amortization of
goodwill, for 1994 increased $9,911,000 (18%) over 1993. Included
in the 1993 results was a $4,320,000 tax provision for the
revaluation of the deferred tax liability. Excluding the effect of
this adjustment, leasing income increased $5,591,000 (10%) in 1994
compared to 1993. The increase was primarily due to a larger fleet
size, more on-hire rail trailer and chassis units and an increased
finance lease portfolio, partially offset by lower utilization and
rates in the standard container line. In 1994, the leasing
operation experienced higher utilization rates for rail trailer and
chassis due to improved economic conditions in the U.S., however,
the standard container line experienced lower utilization rates due
to slow economic growth in some key European economies and Japan.
Revenues for 1994 increased $230,130,000 (56%) over 1993. The
increase was due primarily to the acquisition of the Container
Operations. Revenue increases were also generated by a larger
fleet of new standard and refrigerated containers, more on-hire
rail trailer and chassis units and a larger finance lease
portfolio.
Expenses increased $219,710,000 (70%) in 1994 over 1993 mainly
due to higher depreciation expense, interest expense and operating
costs related to the acquisition of the Container Operations.
The combined utilization of standard containers, refrigerated
containers, domestic containers, tank containers and chassis
averaged 81% in 1994 compared to 83% in 1993. Rail trailer
utilization was 92% in 1994 compared to 91% in 1993. European
trailer utilization was 96% in 1994 compared to 89% in 1993.
The standard container, refrigerated container, domestic
container, tank container and chassis fleet of 685,400 units
increased by 369,400 units (117%) in 1994, largely due to the
acquisition of the Container Operations. The rail trailer fleet of
39,300 units increased by 2,800 units (8%) in 1994. The leasing
operation also operates a fleet of 5,700 over-the-road trailers in
Europe.
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Amounts in thousands)
Year Ended
Three Months Ended December 31,
-----------------------------------------
3/31/94 6/30/94 9/30/94 12/31/94 1994
------- ------- ------- -------- ----------
Revenues $359,977 $429,613 $434,830 $453,407 $1,677,827
======== ======== ======== ======== ===========
Net income $40,780 $48,904 $47,170 $51,388 $188,242
======== ======== ======== ======== ========
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 extinguishment
debt (23,084) (23,084)
------- ------- ------- -------- ----------
Net income (loss) $40,053 $41,233 $(2,347) $20,858 $99,797
======== ======== ======== ======== ========
Note A. The loss for the three months ended September 30, 1993
resulted primarily from after tax charges by the commercial lending
operation of $35,960 to reduce the net carrying value of
repossessed rent-to-own stores held for sale to their estimated
realizable value and $8,799 for the restructuring of the unit's
infrastructure.
(THIS PAGE INTENTIONALLY LEFT BLANK)
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
Financial Statement Schedules
TRANSAMERICA FINANCE CORPORATION AND SUBSIDIARIES
SCHEDULE II - 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 Costs and Accounts- Deductions- End
DESCRIPTION of Expenses Describe Describe of Period
Period
- -------------------- ---------- --------- -------- -------- ------------
(Amounts in thousands)
Year Ended December
31, 1994:
Deducted from assets:
Allowance for
losses:
Consumer:
Finance
receivables $103,313 $ 80,406 $ 5,994 (B) $ 72,495 (C) $ 117,218
Assets held for
sale 2,547 7,314 (A) 7,579 (D) 2,282
Commercial:
Finance
receivables 76,079 8,665 481 (E) 8,651 (C) 86,574
Assets held for
sale 156,985 (5,211)(G) (1,308)(F) 85,380 (D) 65,086
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 (H) 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
(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,
which in 1994 for commercial lending includes $78,735,000
related to the disposal of the rent-to-own stores.
(E) Increase in 1994 and decreases in 1993 and 1992 were due to
foreign exchange and other adjustments.
(F) Decrease in 1994 was associated with the settlement of
litigation on previously charged off accounts. Increases in
1993 and 1992 were due to recoveries on assets held for sale.
(G) Includes $5,273,000 reversal of valuation allowance from
sale of the rent-to-own stores.
(H) Reclassification of allowance for losses on receivables in
process of foreclosure.