UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K

x      Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2002             Commission File Number 1-6798

TRANSAMERICA FINANCE CORPORATION
(Exact name of registrant as specified in its charter)  

Registrant’s telephone number, including area code: (847) 685-1100

Securities registered pursuant to Section 12(b) of the Act:

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. [X]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

YES             NO     X    

     All of the outstanding shares of the registrant’s capital stock are owned by Transamerica Corporation.

     Number of shares of common stock, $10 par value, outstanding as of the close of business on March 5, 2003: 1,464,285.

     The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format.

PART I

ITEM 1.  BUSINESS

The Company

     Transamerica Finance Corporation is a financial services organization that is headquartered in Rosemont, Illinois and conducts business primarily through its subsidiaries in commercial lending, intermodal leasing and real estate information services. Unless the context indicates otherwise, the terms “Company” and “Registrant” as used herein refer to Transamerica Finance Corporation and its subsidiaries. Transamerica Finance Corporation is a wholly owned subsidiary of Transamerica Corporation (“Transamerica”), which is a direct subsidiary of AEGON N.V., an international insurance company. AEGON N.V. is domiciled in the Netherlands with major operations in the United States, the Netherlands, the United Kingdom and Canada. In the normal course of its operations, the Company has various transactions with AEGON N.V. and certain subsidiaries of AEGON N.V. (collectively, “AEGON”).

     The Company’s principal assets are finance receivables (net of unearned finance charges and allowance for losses) and equipment held for lease, which combined totaled $7.6 billion at December 31, 2002 and $8.7 billion at December 31, 2001. For further information on the Company’s finance receivables see below under the Commercial Lending heading and Note C of Notes to Consolidated Financial Statements, included in Item 8. The Company provides capital for its operations which is allocated based on expected returns, the ratio of debt to equity and the capital needs of the operations. In the second half of 2000, AEGON began providing all of the Company’s long-term debt requirements. Prior to that time, the Company offered publicly, from time to time, senior and subordinated debt securities. The most recent public debt issuance of $0.9 billion occurred in the first half of 2000. AEGON provided $1.3 billion in term debt to the Company in 2002 and $1.1 billion in 2001. The Company’s total debt was $6.1 billion at December 31, 2002 and $7.2 billion at December 31, 2001. The ratio of debt to tangible equity was 6.5:1 at December 31, 2002 and 2001. Tangible equity, for the purpose of this calculation, is defined as total equity less goodwill plus minority interest. See Note D of Notes to Consolidated Financial Statements and Management’s Narrative Analysis of Results of Operations for further discussions of the Company’s borrowing activities and liquidity.

Business Segment Information

     The Company operates primarily through three business segments: commercial lending, intermodal leasing and real estate information services, each of which is described below. See Note L of Notes to Consolidated Financial Statements for business segment data.

     In 2000, the Company determined that certain of its businesses did not fit its long-term strategy. As a result of this determination, the Company reclassified certain assets of these businesses as assets held for sale. The Company also identified certain other loan and lease portfolios as liquidating and retained those portfolios in finance receivables. The assets reclassified as assets held for sale included $2.0 billion of net finance receivables from the insurance premium finance, retail finance, consumer mortgage and small business administration loan businesses of the commercial lending operation, and $850.0 million of tank container and domestic products equipment from the intermodal leasing operation. Since their reclassifications, substantially all of these assets have been disposed of in accordance with management’s plans. At December 31, 2002, $36.0 million of these assets, net of a valuation allowance of $21.7 million, remained in assets held for sale and $75.7 million of the Company’s finance receivables were identified as liquidating.

     Commercial Lending

     The commercial lending operation provides loans and leases primarily through four businesses: distribution finance, business capital, equipment financial services and specialty finance. The operation’s offices are located in the United States, Europe, Canada, Mexico and India.

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     Distribution finance provides manufacturers, distributors and dealers with inventory floorplan financing, factoring of receivables, asset-based loans, accounts receivable servicing and financing and commercial credit insurance brokerage. Since 1953, manufacturers and their customers have relied on distribution finance’s customized financing programs to meet their financing needs. Distribution finance manages receivables in 67 countries located in North America, Europe, Latin America and Asia. Its wholesale financing information system is multi-lingual and multi-currency and provides internet connectivity to manufacturers and retailers for account management.

     Distribution finance’s manufacturer customers range from small regional to Fortune 500 multi-national manufacturers. In addition to financing services, distribution finance also provides manufacturers with other distribution products and services and the opportunity for profit sharing through joint ventures. These joint ventures generally involve the use of a distinct legal entity that is jointly owned by the manufacturer and the Company. Finance receivables are originated by the joint venture entity, which obtains all of its debt financing from the Company. Profits and losses are distributed according to the joint venture agreement. These entities are generally consolidated in the Company’s books with the manufacturers’ investment reflected as minority interest. Distribution finance’s distributor customers range from small regional consolidators to large national companies. Services offered to distributors include servicing and funding of accounts receivable, inventory financing and asset-based loans. Distribution finance’s dealer customers range from small local to multinational “big box” retailers. Products offered to dealers range from inventory floorplan financing to asset-based loans. In addition, the operation also operates seven retail locations in Canada that are utilized in conjunction with franchising and dealer support operations.

     Business capital provides asset-based and structured finance loans to middle-market customers in manufacturing, retailing, distribution and selected service businesses. These revolving and term loans are collateralized by tangible assets and enterprise values. Credit lines extended typically range from $5 million to $150 million, of which the Company retains up to $50 million. Contractual terms range from three to five years. Asset-based loans are limited by specific advance rates against the borrower’s eligible collateral and structured finance loans are limited by enterprise values and certain multiples of cash flows.

     Equipment financial services provides loan and lease financing to middle-market customers globally and to the domestic public sector, secured by essential use or revenue producing equipment. The primary industries served include shipping, manufacturing, aviation, public finance, port handling equipment, water transportation, railroad and motor freight. Customer outstandings average approximately $4 million and contractual terms range from three to fifteen years.

     Specialty finance provides commercial real estate bridge loans to developers and investors, as well as financing to early stage life science and information technology companies. Commercial real estate bridge loans are typically floating rate loans, secured by a first mortgage, used to fund the acquisition or refinancing of income producing properties. Loan to value ratios typically range from 75% to 85% with all property valuations supported by independent third party appraisals. Terms are generally three to five years. Technology financing consists of senior term and revolving loans and equipment loans and leases to finance product development, manufacturing and other business activities. Stock warrants are received in connection with many of these transactions.

     The commercial lending industry is highly competitive. In addition to competition from other finance companies and commercial banks, there is competition from captive finance subsidiaries of manufacturing companies. The commercial lending operation competes by offering a variety of financing products and superior customer service, including prompt credit review and competitive pricing.

2

     The following table sets forth certain statistical information relating to the commercial lending operation’s finance receivables for the years indicated:

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     Intermodal Leasing

     The intermodal leasing operation provides service, rental and term operating leases through a worldwide network of offices, third party depots and other facilities. The operation also utilizes modern technology, including its Tradex™ online internet capability, to enable maritime container customers around the world to perform on-hire and off-hire transactions. The operation’s customers include steamship lines, distribution companies, manufacturers and transport companies. In 2002, the operation’s top four customers accounted for approximately 26% of its total revenues. Its main competitors are other transportation equipment leasing companies and financial institutions.

     The intermodal leasing operation offers a wide variety of equipment used in commerce around the world. Its fleet consists of over 674,000 maritime containers (consisting of units that are owned and units that are managed for and leased from others) operating throughout international and domestic markets and over 19,000 European trailers operating throughout the United Kingdom and Western Europe. Lease terms range from one to ten years. At December 31, 2002, 62% of the operation’s fleet was on term lease or service contract minimum lease. Maritime containers are standard twenty and forty foot containers and come in specialized types, such as refrigerated, open top and flat rack equipment types, that allow goods to travel by road, rail or ship. European trailers are curtainsider, refrigerated and box van over-the-road trailers.

     The intermodal leasing operation is influenced primarily by the volume of international and domestic trade. It conducts business with customers throughout the world and is thus subject to the risks of operating in disparate political and economic conditions. Offsetting this risk is the worldwide nature of its business and the ability of its customers to shift their operations from areas of unfavorable political and/or economic conditions to more promising locations.

     Real Estate Information Services

     The real estate information services operation provides property tax payment and reporting, flood certification and other real estate information services to its customers. The real estate information services industry consists of nationwide, regional and local competitors. The operation’s only major nationwide competitor is The First American Corporation, which competes through its tax service and flood certification businesses. The largest component of this operation is the tax service business, which provides tax payment and reporting to mortgage lenders and servicers nationwide. The operation’s primary source of business is large multi-state mortgage lenders and servicers. For 2002, 90% of the operation’s gross billed revenue represented fees for life of loan property tax payment and reporting and flood certifications. In 2002, the operation’s top five customers accounted for approximately 53% of its net billed revenues. See Note B of Notes to Consolidated Financial Statements for a discussion of the Company’s real estate service revenue recognition policy.

     The operation is one of the largest providers of property tax payment and reporting services in the United States. On behalf of mortgage lenders and servicers, the tax service business oversees and reports on the payment of property taxes to taxing authorities on the real estate securing the lenders’ loans, generally for the life of such loans. In general, providers of tax payment and reporting services indemnify mortgage lenders and servicers against losses resulting from a failure to pay and report property taxes in accordance with applicable contractual terms. The fee that is charged to service each mortgage loan varies by the geographic dispersion of the lender’s loan portfolio and the type of service provided.

     The real estate information services operation also provides flood certifications. This business furnishes flood zone determination reports to mortgage lenders and indemnifies those lenders against certain losses in the event such reports prove to be incorrect. These reports provide information reflecting whether or not property securing a loan is in a governmentally delineated special flood hazard area. Mortgage lenders are generally required to obtain a determination of a property’s current flood zone status at the time each loan is originated and to obtain updates during the life of the loan.

4

     Effective during the first quarter of 2002, the tax service business entered into a contract with the largest mortgage servicer in the United States. This servicer became the operation’s largest customer for 2002, representing approximately 20% of its net billed revenue for the year. During the fourth quarter of 2002, the operation’s second largest customer notified the Company that it would not renew its contract, which expires in the second quarter of 2003. This customer represented approximately 18% of the operation’s net billed revenue for 2002. The Company anticipates that its life of loan reporting obligation to this customer will terminate during 2003, at which time the Company will recognize the remaining deferred revenue associated with this customer.

     Real estate information services revenue is tied to the mortgage industry as a whole. Billed revenue for the operation will correlate directly with the overall level of mortgage origination activity. The operation’s earned revenue is somewhat less sensitive to changes in mortgage origination activity levels than its billed revenue because of the Company’s revenue recognition policy, which is described in Note B of Notes to Consolidated Financial Statements.

Regulation

     The Company’s activities are subject to a variety of federal, state, local and international regulations. To date, compliance with such regulations has not had a material adverse effect on the Company’s consolidated financial position or results of operations.

Employees

     The Company employed approximately 3,900 persons at December 31, 2002.

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:

Consolidated Ratios of Earnings to Fixed Charges

     The following schedule sets forth the consolidated ratios of earnings to fixed charges:

     The ratios were computed by dividing income from continuing operations before income taxes and fixed charges, by fixed charges. Fixed charges consist of interest and debt expense and one-third of rent expense, which approximates the interest factor.

5

ITEM 2.  PROPERTIES

     The Company conducts its businesses from various facilities through a worldwide network of offices and other facilities, all of which are leased, as well as third party depots. One facility is leased by the Company through the use of a synthetic lease arrangement.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is party to various pending or threatened legal or regulatory proceedings arising in the course of its businesses. Based upon information presently available, and in light of legal and other defenses and insurance coverage available to the Company, liabilities arising from these matters are not expected to have a material effect on the consolidated financial position or results of operations of the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Omitted in accordance with General Instruction I.

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS

     Not applicable. All of the outstanding shares of the Registrant’s capital stock are owned by Transamerica, which is a direct subsidiary of AEGON N.V.

ITEM 6.  SELECTED FINANCIAL DATA

     Omitted in accordance with General Instruction I.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS OF OPERATIONS

     Omitted in accordance with General Instruction I. See Management’s Narrative Analysis of Results of Operations following the Notes to Consolidated Financial Statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The response to this item is set forth in Market Risk and Interest Rate Risk in Management’s Narrative Analysis of Results of Operations following the Notes to Consolidated Financial Statements.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

6

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Stockholder and Board of Directors
Transamerica Finance Corporation

     We have audited the accompanying consolidated balance sheets of Transamerica Finance Corporation as of December 31, 2002 and 2001, and the related consolidated statements of income, cash flows, and stockholder’s equity for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Transamerica Finance Corporation at December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

     As discussed in Note F to the financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets, and as described in Note B to the financial statements, in 2001 the Company changed its method of accounting for derivatives.

Chicago, Illinois
February 4, 2003

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TRANSAMERICA FINANCE CORPORATION

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CONSOLIDATED BALANCE SHEETS
(Dollar amounts in millions)

See notes to consolidated financial statements

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TRANSAMERICA FINANCE CORPORATION

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CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in millions)

See notes to consolidated financial statements

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TRANSAMERICA FINANCE CORPORATION

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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in millions)

See notes to consolidated financial statements

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TRANSAMERICA FINANCE CORPORATION

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CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY
(Dollar amounts in millions)

See notes to consolidated financial statements

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TRANSAMERICA FINANCE CORPORATION

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note A—Organization

     Transamerica Finance Corporation is a financial services organization that conducts business primarily through its subsidiaries in commercial lending, intermodal leasing and real estate information services. Unless the context indicates otherwise, the terms “Company” and “Registrant” as used herein refer to Transamerica Finance Corporation and its subsidiaries. Transamerica Finance Corporation is a wholly owned subsidiary of Transamerica Corporation (“Transamerica”), which is a direct subsidiary of AEGON N.V., an international insurance company. AEGON N.V. is domiciled in the Netherlands with major operations in the United States, the Netherlands, the United Kingdom and Canada.

     Business Realignment:  In 2000, the Company determined that certain of its businesses did not fit its long-term strategy. As a result of this determination, the Company reclassified certain assets of these businesses as assets held for sale. The Company also identified certain other loan and lease portfolios as liquidating and retained those portfolios in finance receivables. The reclassified assets included $2.0 billion of net finance receivables from the insurance premium finance, retail finance, consumer mortgage and small business administration loan businesses of the commercial lending operation, and $850.0 million of tank container and domestic products equipment from the intermodal leasing operation. A $231.6 million ($159.2 million after tax) provision for expected losses on the disposal of the businesses reclassified to assets held for sale was taken during 2000. The charge was primarily for the write-off of related goodwill and other intangible assets and for the reduction of the carrying value of the reclassified net finance receivables to their estimated realizable value. Since their reclassifications, substantially all of these assets have been disposed of in accordance with management’s plans. At December 31, 2002, $36.0 million of these assets, net of a valuation allowance of $21.7 million, remained in assets held for sale and $75.7 million of the Company’s finance receivables were identified as liquidating.

Note B—Significant Accounting Policies

     Consolidation:  The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, primarily comprised of its commercial lending, intermodal leasing and real estate information services operations. Certain investments in fifty percent owned joint ventures and investments in limited partnerships are consolidated if the Company has effective or voting control of these legal entities. Unaffiliated party interests in joint ventures and partnerships are classified as minority interest in accounts payable and other liabilities in the consolidated balance sheets. Partnership and joint venture interests and other investments in which the Company does not have a controlling interest or has less than a majority ownership are generally recorded using the equity method of accounting and are classified as other assets, with pretax operating results included with other revenues. Certain amounts reported in the consolidated financial statements are based on management estimates prepared in conformity with accounting principles generally accepted in the United States of America. Actual amounts may ultimately differ from those estimates.

     Cash and Cash Equivalents:  Cash and cash equivalents include money market funds and marketable securities with original maturities of three months or less.

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TRANSAMERICA FINANCE CORPORATION

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

        Finance Receivables: Loans are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans and premiums or discounts on purchased loans. Direct finance leases are recorded at the aggregate future minimum lease payments plus estimated residual value less unearned finance charges, except as described below. Direct finance leases include leveraged leases for which a major portion of the funding is provided by third party lenders on a non-recourse basis. The balance of the funding is provided by the Company, which acquires title to the property. Leveraged leases are recorded at the aggregate value of future minimum lease payments plus estimated residual value, less non-recourse third party debt and unearned finance charges. Management performs reviews of the estimated residual values related to its direct finance leases on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these residuals may not be recoverable. If the fair value of the residual is less than its carrying value and such condition is determined to be other than temporary, a charge-off against the allowance for losses is taken upon such determination. When collateral is repossessed, the related receivable is written down to its estimated realizable value through a charge-off against the allowance for losses and the repossessed assets are reclassified as equipment held for lease or assets held for sale.

     Allowance for Losses:  The allowance for losses is maintained in an amount that is sufficient to cover estimated uncollectible finance receivables. Such estimates are based on percentages of net finance receivables outstanding developed from historical credit loss experience and, if appropriate, a provision for deviation from historical averages, supplemented by specific reserves for accounts known to be impaired. The Company may also reserve for finance receivables that are not impaired individually but have common collateral value and credit risk characteristics that indicate that there is a probable loss within the group. The allowance is provided through charges against current income. Accounts are charged-off against the allowance when they are deemed to be uncollectible.

     Property and Equipment:  Property and equipment (including equipment under capital lease) are stated at cost less accumulated depreciation and amortization. The net book value of equipment under capital lease was $72.4 million at December 31, 2002. Property and equipment are depreciated by use of the straight-line method over their estimated useful lives. Leasehold improvements are amortized using the straight-line method over the shorter of the initial term of the respective lease or the estimated useful life of the improvement. Costs of major additions and improvements are capitalized. Expenditures for maintenance and repairs are expensed as incurred.

     Long-Lived Assets:  A review for impairment of long-lived assets, such as equipment held for lease, is performed at least annually and whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable. Recoverability of such assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If an asset is determined to be impaired, the amount by which the carrying amount of the asset exceeds its fair value is charged to expense in the period of identification.

     Asset Obsolescence:  The Company’s long-lived assets may be subject to functional or economic obsolescence. Although the Company believes it is adept at managing obsolescence risk, there is no guarantee that changes in various market fundamentals will not cause unexpected asset obsolescence in the future.

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TRANSAMERICA FINANCE CORPORATION

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

     Discontinued Operations:  In September 2001, the Financial Accounting Standards Board (“FASB”) issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS No. 144”), that is applicable to financial statements issued for fiscal years beginning after December 15, 2001. This statement superseded FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and changed the criteria that have to be met to classify an asset as held for sale. The new rules also superseded the provisions of Accounting Principles Board Opinion 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (“APB 30”), with regard to reporting the effects of a disposal of a component of a business, and require expected future operating losses from discontinued operations to be reported as discontinued operations in the period(s) in which the losses are incurred, rather than as of the measurement date as presently required by APB 30. The adoption of FAS No. 144 as of January 1, 2002 affected the Company in that two of its businesses identified during 2002 for disposal met the criteria of the statement for a component of an entity. Therefore, the results of these businesses have been reflected in the consolidated statements of income as discontinued operations and their assets have been reclassified as assets held for sale in the consolidated balance sheets. See Note N for a further discussion of the Company’s discontinued operations.

     Assets Held for Sale:  In accordance with FAS No. 144, assets held for sale are carried at the lower of their fair value less costs to sell or carrying value, and depreciation on the assets is halted. At December 31, 2002, assets held for sale consisted primarily of finance receivables, certain equipment not on lease, fixed assets (from discontinued operations) and other repossessed assets. Any required subsequent downward valuation adjustments of assets held for sale are provided through operating expenses. At December 31, 2001, repossessed assets were included in other assets.

      Goodwill and Other Intangible Assets:  In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets (“FAS No. 142”). This statement significantly changed the accounting for goodwill and intangible assets. Under FAS No. 142, goodwill and other intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual fair value impairment tests in accordance with the statement. Other identifiable intangible assets, principally customer relations agreements (renewal, referral and other rights) incident to businesses and assets acquired, continue to be amortized over their estimated future benefit periods and are reviewed for impairment whenever events indicate that their carrying amounts may not be recoverable. Prior to adopting FAS No. 142, goodwill was amortized using the straight-line method over periods up to forty years. Goodwill and other acquired intangible assets were reviewed for impairment whenever events indicated that the carrying amounts may not be recoverable using undiscounted cash flows. Impairment charges, when required, were calculated using discounted cash flows and charged to expense in the period of identification. See Note F for a further discussion of the Company’s goodwill and other intangible assets and the impact that the adoption of FAS No. 142 had on the Company.

     Investments:  Investments in fixed maturities are generally held to maturity and carried at amortized cost. Equity securities, exercisable stock warrants and fixed maturity investments, which may be disposed of prior to maturity, are classified as available for sale and are carried at fair value. Fair value is based on quoted market prices, or if not available, discounted expected cash flows using current market rates commensurate with the credit quality and maturity of the investment. Changes to the carrying amount of equity securities are included in a separate component of stockholder’s equity. Realized gains and losses on investment transactions are generally determined on a specific identification basis and reflected in earnings on the trade date. Prior to January 1, 2001, changes to the carrying amount of exercisable stock warrants were included in a separate component of stockholder’s equity. Effective upon the adoption of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (“FAS No. 133”), changes in the carrying amount of stock warrants are included in income.

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TRANSAMERICA FINANCE CORPORATION

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

     Finance Charges:  Finance charges are generally recognized on an effective yield method. Charges collected in advance on distribution finance receivables are taken into income on a straight-line basis over the period to which the charges relate, which generally averages ninety days. Related origination and other non-refundable fees and direct origination costs are deferred and amortized as an adjustment of finance charges over the contractual life of the transactions. If a finance receivable liquidates before amortization is completed, any unamortized origination costs or non-refundable fees are taken into income upon liquidation. Accrual of finance charges is suspended on accounts that contractually become past due in excess of ninety days or at the discretion of management. Accrual of finance charges on accounts in non-earning status is resumed when the accounts have been paid up to contractually current status or as conditions warrant.

     Leasing Revenues:  Leasing revenues are earned on service, rental and term operating leases. Rental revenues are recognized in the period billed. Revenues from service contract minimum and term leases are recognized on a straight-line basis over the lease term. Initial direct costs are amortized on a straight-line basis over the lease term.

     Real Estate Service Revenues:  Real estate service revenues are primarily fees for life of loan property tax payment and reporting services and flood certifications. In accordance with Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, life of loan fees are deferred and recognized in income over the expected loan portfolio life. The Company periodically reviews its revenue recognition method to determine if the loan portfolio lives and/or prepayment speeds used have changed. Accordingly, the Company may adjust the deferral period to reflect current trends. The Company’s policy also provides that upon the loss of a customer the deferred revenue relating to such customer may be recognized in income at the time the Company’s life of loan servicing obligation to such customer is extinguished. Real estate service revenues also include other service revenues earned by the real estate information services operation. These revenues are generally recognized at the time of delivery, as the Company has no significant ongoing obligation after delivery.

     Other Revenues:  Other revenues primarily include finance charges on the finance receivables from businesses classified as assets held for sale (prior to the adoption of FAS No. 144), commitment, unused lines of credit, early termination, letter of credit and syndication fees, and gains on the sales of investments, finance receivables classified as assets held for sale and equipment held for lease. Other revenues also include gross sales margin from the commercial lending operation’s purchase and sale of inventory and the intermodal leasing operation’s container resale business. Gross sales and margins from these operations were (in millions) $632.8 and $27.5 for 2002, $584.9 and $25.9 for 2001, and $533.5 and $24.9 for 2000, respectively.

     Income Taxes:  Taxable results of each of the Company’s subsidiaries are included in the consolidated federal and certain state income tax returns filed by Transamerica, which by the terms of a tax agreement generally requires the Company to accrue and settle income tax obligations as if the individual legal entities filed separate returns with the applicable taxing authorities. All other state, local and foreign tax requirements are satisfied by the various legal entities directly with the appropriate taxing authorities. Under a tax sharing agreement, Transamerica provides an unlimited carryforward period for the utilization of all federal tax attributes including, but not limited to, net operating losses, foreign tax credits, capital losses and charitable contributions. The Company provides for deferred taxes based on enacted tax rates in effect on the dates temporary differences between the book and tax bases of assets and liabilities are expected to reverse. The earnings associated with the Company’s investment in its foreign subsidiaries are considered to be indefinitely invested. Therefore, no provisions for U.S. federal income taxes on those earnings or translation adjustments have been provided. See Note H for further information on the Company’s income taxes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

     Foreign Currency Translation:  The net assets and operations of foreign subsidiaries included in the consolidated financial statements are attributable primarily to Canadian and European operations. The accounts of these subsidiaries have been converted at rates of exchange in effect at year-end as to balance sheet accounts and at a weighted average of exchange rates for the year as to income statement accounts. The effects of changes in exchange rates in translating foreign subsidiaries’ financial statements are accumulated in a separate component of stockholder’s equity.

     Transactions with Affiliates:  In the normal course of its operations, the Company has various transactions with AEGON N.V. and certain of its other subsidiaries (collectively, “AEGON”). These transactions primarily consist of term debt borrowings, capital transactions, the filing of consolidated income tax returns, computer and other specialized services, various types of insurance coverage, overnight investments of cash from the Company’s foreign subsidiaries and pension administration. See Notes D, H, J and M for further discussions of these transactions and their related effects.

     Derivatives:  In accordance with FAS No. 133, the Company recognizes all derivative financial instruments, such as interest rate and foreign currency forward exchange agreements, in the consolidated financial statements at fair value regardless of the Company’s purpose or intent for holding the instrument. For interest rate exchange agreements, the net amounts paid or received and net amounts accrued are included in interest expense. Changes in the fair value of derivative financial instruments are periodically recognized in interest expense or in stockholder’s equity as a component of other comprehensive income. Generally, changes in the fair value of derivatives accounted for as fair value hedges are recorded in income along with the portions of the changes in the fair value of the hedged items that relate to the hedged risk(s). Changes in the fair value of derivatives accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in other comprehensive income, net of deferred taxes. Changes in the fair value of derivatives used as hedges of a net investment in foreign operations are reported in other comprehensive income as part of the cumulative translation adjustment, net of deferred taxes. Changes in the fair value of derivatives that do not qualify as hedges are reported in income. Cash flows from derivative instruments that are accounted for as fair value or cash flow hedges are classified in the consolidated statement of cash flows in the same category as the items being hedged. The adoption of FAS No. 133 as of January 1, 2001 resulted in the cumulative effect of an accounting change of $7.7 million, net of applicable income tax expense of $4.1 million, which was recognized as income in the consolidated statement of income for the year ended December 31, 2001.

     Prior to January 1, 2001, the Company also used interest rate and foreign currency forward exchange agreements for hedging purposes. For interest rate exchange agreements, the net amounts paid or received and net amounts accrued were included in interest expense. Unrealized gains or losses on interest rate exchange agreements were not recognized in income. Gains or losses on any effective agreements terminated early were deferred and are amortized into income over the remaining average life of the terminated agreements. Gains or losses on any terminated ineffective agreements were recorded in the income statement in the period of termination. For foreign currency forward exchange agreements hedging firm commitments, the effects of movements in currency exchange rates on those commitments were recognized when the related operating revenue was recognized. The discounts or premiums on the agreements were amortized into income over the lives of the agreements using the straight-line method. Realized gains and losses were included in other assets and liabilities and recognized in income when the future transaction occurred or at the time the transaction was no longer expected to occur.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

     Securitizations:  The Company has entered into securitization arrangements under which it sells designated pools of net finance receivables to qualified special purpose entities (“QSPEs”) and other unaffiliated third party entities. At December 31, 2002, securitized assets included interests in distribution finance floorplan, equipment financial services and consumer mortgage finance receivables (collectively, the “securitized assets”). Under the terms of the securitization arrangements, the Company retains the servicing rights to the securitized assets and generally receives a servicing fee on the outstanding balance of the securitized assets along with rights to future residual cash flows. The estimated present value of these rights to future cash flows are recorded on the balance sheet at the time of sale as interest-only strip receivables or in the form of subordinated investor certificates. Gains and losses on the sale of the securitized assets represent the difference between the book value of the assets sold and the fair value of the residual interest retained at the date of transfer. Under securitization arrangements in which the Company services the finance receivables and there is no specified servicing fee, a servicing liability is established to reflect the fair value of the cost to service the portfolio. See Note C for a further discussion of the Company’s securitization activities.

     Reclassification:  Certain reclassifications have been made to the 2001 and 2000 consolidated financial statements to conform to the 2002 classifications.

Note C—Finance Receivables

     Contractual maturities of finance receivables outstanding at December 31, 2002 were:

     Non-earning finance receivables are defined as balances from borrowers that are more than ninety days delinquent for non-credit card finance receivables or at such time as full collectibility becomes doubtful. Non-earning finance receivables on revolving credit card accounts included in retail finance are defined as balances from borrowers in bankruptcy and accounts for which full collectibility is doubtful. Non-earning finance receivables were $208.5 million (3.09% of finance receivables outstanding) at December 31, 2002 compared with $238.2 million (3.06% of finance receivables outstanding) at December 31, 2001. Finance charges that would have been recorded if such receivables had been classified as earning were $24.9 million for 2002 and $36.0 million for 2001. Finance charges included in net income prior to these receivables being placed on non-earning status were $11.4 million for 2002 and $18.6 million for 2001.

Concentration of Risk

     The Company engages in the extension of credit to a wide range of business enterprises in various industries. The majority of these finance receivables are secured by the assets being financed. The risk associated with the extension of credit is subject to economic, competitive and other influences. The Company has geographically dispersed net finance receivables of which approximately 9% of the borrowers were located in California at December 31, 2002. There were no other individual states with more than a 6% concentration. The net finance receivables portfolio included seven customers with individual balances in excess of $40 million at December 31, 2002. These accounts represented 8.2% of net finance receivables outstanding at December 31, 2002.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Securitizations of Finance Receivables

     The Company has entered into securitization arrangements under which it sells designated pools of net finance receivables to QSPEs and other unaffiliated third party entities. Under generally accepted accounting principles, these entities are not consolidated in the Company’s financial statements. The QSPEs, in turn, sell interests in these receivables to several conduits. The conduits fund their purchases through the issuance of securities to investors, which are backed by the underlying receivable interests. At December 31, 2002, retained interests in assets sold under securitization arrangements consisted of interests in distribution finance floorplan, equipment financial services and consumer mortgage finance receivables (collectively, the “securitized assets”). In 2002, the Company terminated its $13.9 million arrangement in the securitization of unguaranteed small business administration loans and, in 2001, the Company decided not to renew its $360.0 million arrangement in the securitization of insurance premium finance receivables. The termination/expiration of these arrangements resulted from the Company’s decision to exit these businesses.

     Under the terms of the securitization arrangements, the Company retains the servicing of the securitized assets and generally receives a servicing fee on the outstanding balance of the securitized assets along with rights to future residual cash flows after the investors have received their contractual returns. The estimated present value of these rights to future cash flows are recorded on the balance sheet at the time of sale as interest-only strip receivables or in the form of subordinated investor certificates. In calculating the residual cash flows, the Company makes use of assumptions about variables such as discount rates, prepayment levels, average terms, yield spreads and credit losses. These assumptions are based upon historical performance, industry trends and other forms of quantitative analysis. Servicing fees generally are collected over the life of the securitized assets; however, under arrangements in which the Company services the finance receivables and there is no specified servicing fee, a servicing liability is established to reflect the fair value of the cost to service the portfolio. As a credit enhancement, each QSPE or other unaffiliated third party entity holds additional collateral in the form of finance receivable interests.

     Neither the investors nor the conduits have recourse to the Company’s assets for the failure of the pool receivable debtors to pay. Their rights are limited to the related future cash flows of the securitized assets and the credit enhancements. At December 31, 2002, retained interests in the form of interest-only strip receivables and subordinated investor certificates totaled $35.9 million, of which $31.1 million was included in other assets and $4.8 million was included in investments. The Company had a servicing liability of $9.5 million at December 31, 2002. The Company’s interests representing contractually required credit enhancements in the form of over-collateralization amounted to $282.9 million at December 31, 2002 and were classified as finance receivables on the balance sheet.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

     The following schedule details the amounts by which the fair value of interest-only strip receivables would reduce as a result of 10% and 20% adverse changes to yield spreads, credit loss, prepayment levels and discount rates at December 31, 2002. The schedule omits analysis of the consumer mortgage finance receivable securitization because that facility represents approximately 1% of the total securitized assets. The sensitivities analyzed in the schedule are merely hypothetical and should not be considered as predictive of future performance.

     The distribution finance floorplan and equipment financial services receivable securitization arrangements are revolving in nature. As securitized assets are paid off (by the underlying debtor), eligible newly originated finance receivables are added to the pool up to the maximum amount available under the facility. Proceeds from the collections of securitized assets reinvested in these securitizations during 2002 were approximately $11 billion. Under the distribution finance floorplan securitization arrangement, eligible pools of finance receivables and the level of the facility vary due to seasonal fluctuations. In 2002, the Company added a $300.0 million seasonal facility to its existing distribution finance floorplan securitization arrangement, which is available from February 1st through June 30th of each calendar year. The seasonal facility is designed to complement the peak origination period for floorplan receivables. Finance receivable and securitized asset amounts alternatively increase and decrease along with the seasonality of finance receivable originations. The effective term of the distribution finance floorplan receivables averages approximately three months and equipment financial services receivables have average terms of approximately forty-seven months. Consumer mortgage loans have a maximum term of thirty years.

     The following table details the securitized finance receivables at December 31:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note D—Debt

     Short-term borrowings are primarily in the form of commercial paper notes issued by the Company. Such commercial paper is continuously offered, with maturities not exceeding 270 days in the U.S. and 365 days in Canada. The cost of short-term debt is directly related to prevailing rates of interest for similarly rated companies in the money market; such rates are subject to fluctuation.

     The Company’s short-term borrowings are supported by non-cancelable credit agreements with various banks. The credit agreements provide the Company with the ability to borrow up to $3.25 billion with interest at variable rates. A $1.625 billion 364-day credit agreement expires in June 2003 and permits the Company, at its option, to renew for an additional one-year period. A second $1.625 billion credit agreement expires in June 2005. There were no borrowings outstanding under the credit lines at December 31, 2002. The credit agreements require the Company to pay an annual fee on the amounts committed. The Company’s commercial paper notes and credit agreements are guaranteed by AEGON N.V.

     In the second half of 2000, AEGON began providing all of the Company’s long-term debt requirements. Prior to that time, the Company offered publicly, from time to time, senior and subordinated debt securities. The most recent public debt issuance of $0.9 billion occurred in the first half of 2000. AEGON provided $1.3 billion in term debt to the Company in 2002 and $1.1 billion in 2001. Interest expense on term debt due to AEGON and included in the consolidated statements of income was $66.2 million for 2002, $31.8 million for 2001 and $0.3 million for 2000.

     Interest payments, including net amounts exchanged from interest rate exchange agreements, totaled $263.7 million for 2002, $440.0 million for 2001 and $609.0 million for 2000.

     The Company is subject to certain restrictions in its borrowing agreements. The most significant covenant in the Company’s indentures is a limitation on liens provision, which excepts certain ordinary course liens needed to operate the Company’s businesses. Many of the Company’s borrowing agreements also specify a minimum level of capital that must be maintained. At December 31, 2002, the Company’s capital level exceeded the minimum requirements by $294.5 million.

     Under certain circumstances, the provisions of some loan agreements and statutory requirements place limitations on the amount of funds that can be remitted by the Company to its parent company.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

     The following table details debt at December 31:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

     Long-term debt outstanding at December 31, 2002 matures as follows:

     The weighted average annual interest rates were as follows:

Derivatives

     The Company uses derivative financial instruments to hedge some of its interest rate and foreign currency exchange rate risks. The Company uses interest rate exchange agreements to hedge the interest rate risk of its outstanding indebtedness. The interest rate exchange agreements are intended to help the Company more closely match the cash flows received from its assets to the payments on its liabilities, and generally provide that one party pays interest at a floating rate in relation to movements in an underlying index, while the other party pays interest at a fixed rate. The Company uses foreign currency forward exchange agreements primarily to hedge the risks associated with the funding of certain of its foreign operations. Under these agreements, the Company agrees to sell to other contracting parties a specified amount of foreign currency for a specified amount of dollars at a future date. Derivatives are used only for the purpose of hedging such risks, not for speculation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

     Debt derivative financial instruments outstanding had notional amounts of $0.7 billion at December 31, 2002 and $1.7 billion at December 31, 2001. Of these derivatives, $0.5 billion at December 31, 2002 and $1.3 billion at December 31, 2001 qualified under FAS No. 133 for hedge accounting treatment. The hedging relationships of the Company’s fair value and cash flow hedges qualify under FAS No. 133 for the “short cut method” and therefore no ineffective cash flow gains or losses were recognized. The Company had a $5.5 million loss during 2002 and a $1.7 million gain during 2001 included in interest expense related to interest rate exchange agreements that did not qualify for hedge accounting treatment under FAS No. 133 as related debt matured or was retired early. Also during 2001, the Company de-designated a previous hedge on an unrecognized foreign exchange commitment relating to the intermodal leasing operation due when the nature of the commitment changed, resulting in a gain of $3.8 million ($2.4 million after tax) that was recorded in other revenue.

     The following table sets forth the notional amounts and the weighted average pay and receive interest rates of the Company’s interest rate exchange agreements as of December 31:

Foreign currency forward exchange
 agreements

     While the Company is exposed to credit risk in the event of non-performance by the counterparty, the likelihood of non-performance is mitigated significantly due to the high credit ratings of the counterparties. At December 31, 2002, all of the interest rate and foreign currency forward exchange agreements were with financial institutions with investment grade ratings of A or better by one or more of the major credit rating agencies. At December 31, 2002 and 2001, foreign currency forward exchange agreements in the amount of $162.2 million and $221.8 million, respectively, were with AEGON.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note E—Allowance for Losses

     Changes in the allowance for losses on net finance receivables and assets held for sale were as follows:

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TRANSAMERICA FINANCE CORPORATION

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note F—Goodwill and Other Intangible Assets

     The Company adopted FAS No. 142 as of January 1, 2002. Pursuant to FAS No. 142, the Company completed its assessment of its previously recognized goodwill and other intangible assets in the first quarter of 2002. Based on the results of this assessment, $1.4 million of other intangible assets were reclassified as goodwill. The Company also performed the goodwill impairment test required under FAS No. 142 by comparing the unamortized balance of its goodwill to the implied fair value of its goodwill determined through the use of a discounted cash flow model. As a result of this test, the Company recognized after tax impairment losses of $35.4 million and $8.0 million on the goodwill of the intermodal leasing operation and a reporting unit in the commercial lending operation, respectively. These losses were recorded as the cumulative effect of a change in accounting principle in the first quarter of 2002. The Company previously evaluated goodwill for impairment by comparing the unamortized balance of its goodwill to projected undiscounted cash flows. Under this methodology, the Company did not have any goodwill impairment.

     The Company completed its annual assessment of goodwill during the fourth quarter of 2002 and no impairments were indicated.

     The Company’s net income adjusted to exclude goodwill amortization, net of tax, was as follows for the years ended December 31:

     The changes in the carrying amount of goodwill and other intangible assets for the year ended December 31, 2002 were as follows:

     The carrying amount of the Company’s goodwill, by segment, was as follows for the years ended December 31:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

     The Company’s only class of other intangible assets relates to customer relations agreements incident to businesses and assets acquired. All of the Company’s other intangible assets are amortizing. The future benefit periods range from ten to fifteen years and as of December 31, 2002, the weighted average amortization period was fourteen years. Estimated other intangible asset amortization expense for the succeeding five years is as follows:

Note G—Fair Value of Financial Instruments

Finance Receivables

     The carrying amount and estimated fair value of the finance receivable portfolio (net of unearned finance charges and allowance for losses) were as follows at December 31:

     The estimated fair value of the fixed rate receivables is based on the discounted value of the future cash flows expected to be received using available secondary market prices for securities backed by similar loans and after adjustments for differences in loan characteristics. In the absence of readily available market prices, the expected future cash flows are discounted at effective rates currently offered by the Company for similar loans. For variable rate receivables, which comprise the majority of the finance receivable portfolio, the carrying amount represents a reasonable estimate of fair value.

Debt

     At December 31, 2002 and 2001, the estimated fair value of the Company’s debt, using rates currently available for debt with similar terms and maturities, was $6.4 billion and $7.4 billion, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Derivatives

     The net present value of interest rate and foreign currency forward exchange agreements offset changes in the fair value of the hedged indebtedness, which is carried at amortized cost. The fair values of interest rate and foreign currency forward exchange agreements are the estimated amounts that the Company would receive or pay to terminate the agreements at the reporting date, taking into consideration current interest rates as well as the current creditworthiness and credit ratings of the exchange agreement counterparties. The fair value of the hedges at December 31, 2002 consisted of gross obligations to counterparties of $20.1 million and gross benefits of $11.8 million, resulting in a net obligation of $8.3 million. The fair value of the hedges at December 31, 2001 consisted of gross obligations to counterparties of $11.9 million and gross benefits of $17.3 million, resulting in a net benefit of $5.4 million. In accordance with FAS No. 133, these gross benefits and obligations were recorded in the balance sheet and classified as other assets and accounts payable and other liabilities, respectively. All derivative contracts were valued using third party quotes.

Note H—Income Taxes

     The following table sets forth the income tax expense (benefit) for the periods indicated: