UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1994
Commission file number 1-4976
USL Capital Corporation
(Exact name of registrant as specified in its charter)
Delaware 94-1360891
(State of Incorporation) (I.R.S. Employer Identification No.)
733 Front Street, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
(415) 627-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
As of August 5, 1994, the Registrant had outstanding 10 shares of
Common Stock, all of which were owned by Ford Holdings, Inc.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H(1)(a) AND (b), AND IS THEREFORE FILING THIS FORM 10-Q WITH REDUCED DISCLO-
SURE FORMAT.
PAGE
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
I N D E X
Page No.
Part I - Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets --
June 30, 1994 and December 31, 1993 . . . . . . . . . 3
Consolidated Statements of Income --
Three and six months ended June 30, 1994 and 1993 . . 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1994 and 1993 . . . . . . . 5
Notes to Condensed Consolidated
Financial Statements. . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . 7
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 11
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(In thousands) 1994 1993
ASSETS
Cash and equivalents $ 14,487 $ 6,708
Investment in finance leases - net 2,286,399 2,364,062
Notes receivable 761,559 721,257
Investment in operating leases - net 678,120 694,737
Investment in leveraged leases 192,333 190,502
Investment in securities 597,942 562,873
Inventory held for sale or lease 71,898 54,811
Other receivables 15,453 18,296
Investment in associated companies 18,141 18,357
Office facilities at cost less
accumulated depreciation 8,597 8,386
Goodwill 186,317 189,239
Other assets 24,117 21,981
Total assets $4,855,363 $4,851,209
LIABILITIES
Short-term notes payable $1,123,533 $ 985,277
Accounts payable 28,420 65,643
Accrued liabilities and lease deposits 105,459 120,416
Payable to Ford and affiliates 58,167 79,490
Deferred taxes on income 352,713 314,505
Long-term debt 2,402,609 2,548,250
Total liabilities 4,070,901 4,113,581
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDER'S EQUITY
Common stock * *
Additional capital 521,425 521,425
Net unrealized gain/(loss) on
available-for-sale securities (1,140) -
Retained earnings 264,177 216,203
Total shareholder's equity 784,462 737,628
Total liabilities and
shareholder's equity $4,855,363 $4,851,209
*Less than one thousand dollars
3
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
(Unaudited; in thousands) 1994 1993 1994 1993
REVENUES $149,441 $136,549 $292,452 $269,026
EXPENSES
Sales, administrative and general 15,069 14,944 31,802 32,543
Interest 52,999 46,669 105,290 90,378
Depreciation -- operating leases 31,509 32,630 64,084 67,504
Other 10,090 14,126 20,669 25,300
Total expenses 109,667 108,369 221,845 215,725
Income before taxes on income 39,774 28,180 70,607 53,301
Taxes on income 12,839 8,591 22,633 16,855
NET INCOME $ 26,935 $ 19,589 $ 47,974 $ 36,446
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USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
(Unaudited; in thousands) 1994 1993
Net cash flow from operating activities $ 98,583 $ 155,653
CASH FLOWS FROM INVESTING ACTIVITIES
Recovery of equipment costs and residual interests 315,387 288,421
Proceeds from sale of finance receivables 67,581 52,488
Cost of equipment acquired for lease (367,422) (727,863)
Notes receivable investments (125,491) (150,105)
Collections on notes receivable investments 79,152 43,157
Real estate held for investment and sale and property
acquired in settlement of loans (11,200) -
Purchase of held-to-maturity securities (33,267) -
Maturity of held-to-maturity securities 7,591 -
Purchase of available-for-sale securities (8,149) -
Sale and maturity of available-for-sale securities 1,766 -
Purchase of investment securities - (119,760)
Sale of investment securities - 4,892
Increase in deferred initial direct costs (2,262) (3,599)
Other (6,689) (1,280)
Net cash used by investing activities (83,003) (613,649)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 4,556 559,602
Long-term debt repaid (150,588) (161,875)
Net increase in short-term borrowings 138,231 25,172
Capital contribution from Ford Holdings - 40,000
Net cash (used)/provided by financing activities (7,801) 462,899
Increase in cash and equivalents 7,779 4,903
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 6,708 5,001
CASH AND EQUIVALENTS AT END OF PERIOD $ 14,487 $ 9,904
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Interest paid $ 110,907 $ 86,920
Income taxes paid 278 250
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
None
5
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary to a fair statement of the results for
the interim periods. The results of operations for such interim periods are
not necessarily indicative of results of operations for a full year. The
December 31, 1993 consolidated balance sheet included herein is derived from
the audited financial statements included in the Company's annual report on
Form 10-K for the year ended December 31, 1993, but does not include all
disclosures required by generally accepted accounting principles. The
statements should be read in conjunction with the significant accounting
policies and notes to consolidated financial statements included in the Form
10-K for the year ended December 31, 1993. Certain amounts have been
reclassified to conform to the 1994 presentation.
The Company is a wholly-owned subsidiary of Ford Holdings, Inc., the
common stock of which is owned by Ford Motor Company ("Ford") and Ford Motor
Credit Company, a wholly-owned subsidiary of Ford.
2. INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities",
effective January 1, 1994. The effect on the Company's financial statements
was not material.
<PAGE 6>
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pursuant to General Instructions H(2)(a), the following narrative
analysis is presented in lieu of Management's Discussion and Analysis of
Financial Condition and Results of Operations.
RESULTS OF OPERATIONS
Revenues, Expenses and Operating Profit
Six Months Ended 1994 vs. 1993
June 30, Increase/(Decrease)
(In thousands) 1994 1993 Amount %
Revenues $292,452 $269,026 $ 23,426 9%
Expenses
Sales, admin. & general 31,802 32,543 (741) (2)
Interest 105,290 90,378 14,912 17
Depreciation 64,084 67,504 (3,420) (5)
Other expenses 20,669 25,300 (4,631) (18)
Total expenses 221,845 215,725 6,120 3
Operating Profit $ 70,607 $ 53,301 $ 17,306 32%
Revenues
Consolidated revenues increased $23.4 million or 9% during the first six
months of 1994 reflecting a 20% increase in average earning assets. This
increase was partially offset by a decrease in revenue yields relating to the
general decline in interest rates and a decrease of $2.2 million in the gain
on sale of residuals and equipment.
Expenses
Total expenses for the first six months of 1994 increased $6.1 million or
3%, and are discussed below.
Sales, administrative and general expenses decreased $741,000 or 2% in the
first six months of 1994 compared with the 1993 six-month period. The
decrease primarily is a result of cost reduction actions.
Interest expense increased $14.9 million or 17% for the six-month period,
reflecting an increase in average borrowings from $2.98 billion in 1993 to
$3.53 billion in 1994 to finance earning assets. This increase was offset in
part by a slight decline in borrowing rates, which averaged 6.0% in the first
six months of 1994 compared to 6.1% in 1993.
7
Depreciation expense on operating lease equipment decreased
$3.4 million or 5% in the 1994 six-month period, although the average
investment in the cost of operating lease equipment increased 9% or
$83 million during the period. This increase in equipment cost primarily
reflects the addition of approximately $116 million in the Rail Services
business at the end of February 1993, with an average life of 16 years,
offset in part by a decline in operating lease equipment in the Fleet
Services business. The reduction in depreciation expense is the result
of the shift to the longer depreciable life rail car assets and certain
Fleet assets becoming fully depreciated.
Other expenses decreased $4.6 million or 18% in the 1994 first six months
primarily due to a decrease in the provision for losses (see Credit loss
experience).
Income before taxes on income
Based upon the discussion above, operating profit for the first six months
improved $17.3 million or 32% compared with 1993 results.
Taxes on income
Income tax expense was 32.1% of income before taxes in the 1994 six-month
period compared with 31.6% in the same 1993 period. The increase from 1993
is primarily a result of the 1993 1% U.S. Corporate tax rate increase which
was effective as of January 1, but was not enacted until the third quarter of
1993, offset in part by an increase in income exempt from Federal taxes.
8
GENERAL
Credit loss experience
The management of credit exposure is an important element of the Company's
business. The Company reviews the credit of all prospective customers, and
manages concentration exposures by customer, collateral type, and geographic
distribution. It establishes appropriate loss allowances based on the credit
characteristics and the loss experience for each type of business, and also
establishes additional reserves for specific transactions if it believes this
action is warranted. Delinquent receivables are reviewed by management
monthly, and generally are written down to expected realizable value when, in
the opinion of management, they become uncollectible or when they become more
than 180 days past due. Collection activities continue on accounts written
off when management believes such action is warranted.
The table below shows certain information on the Company's allowance for
doubtful accounts related to earning assets for the periods indicated:
Six Months Ended Twelve Months Ended
June 30, December 31,
1994 1993 1993
Allowance for doubtful accounts (millions)
Beginning balance $54.5 $ 39.9 $ 39.9
Additions 6.4 10.7 24.4
Deductions (2.1) (5.0) (9.8)
Ending balance $ 58.8 $ 45.6 $ 54.5
Percent of earning assets 1.3% 1.1% 1.2%
Total balances of accounts receivable
over 90 days past due at period
end (millions) $41.2 $ 41.6 $ 44.3
Percentage of earning assets 0.9% 1.0% 1.0%
Total earning assets (millions)
Investment in finance
leases - net $2,286.4 $2,213.6 $2,364.1
Investment in operating
leases - net 678.1 661.7 694.7
Investment in leveraged
leases 192.3 74.7 190.5
Notes receivable 761.6 602.4 721.3
Investment in securities 598.0 448.2 562.9
Inventory held for sale or
lease 71.9 90.1 54.8
Investment in associated
companies 18.1 19.7 18.3
Total $4,606.4 $4,110.4 $4,606.6
Since December 31, 1993, accounts receivable over 90 days past due
decreased $3.1 million, primarily because of improved collection on aged
accounts and the completion of foreclosure on an apartment complex, which was
collateral for an $11.2 million note which was delinquent at December 31,
1993. This decrease in accounts receivable over 90 days past due was offset
in part by a delinquent note in the amount of $10.5 million, collateralized by
an office/retail complex in California. Management is currently in the
process of attempting to restructure this note.
9
Earning assets by business unit
The table below summarizes the earning assets by business unit as a
percentage of the total.
June 30, December 31,
1994 1993 1993
Business Equipment Financing 29% 32% 32%
Transportation & Industrial Financing 25 23 24
Fleet Services 11 11 10
Municipal and Corporate Financing 17 14 16
Real Estate Financing 9 10 9
Rail Services 9 10 9
Total 100% 100% 100%
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12. Computation of ratio of earnings to fixed charges.
(b) Reports on Form 8-K.
There were no Form 8-K reports required to be filed during the quarter
for which this report is filed.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
USL CAPITAL CORPORATION
August 5, 1994 By: /s/ George F. Stallos
Date George F. Stallos
Executive Vice President
and Chief Financial Officer
August 5, 1994 By: /s/ Robert A. Keyes, Jr.
Date Robert A. Keyes, Jr.
Vice President, Corporate Controller
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Exhibit 12
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended Six Months Ended
June 30, June 30,
(Unaudited; in thousands) 1994 1993 1994 1993
Earnings:
Income before taxes on income
per statement of income. . $ 39,774 $ 28,180 $ 70,607 $ 53,301
Add
Fixed charges. . . . . . . 53,686 47,742 106,790 92,458
Distributions and proceeds
in excess of (less than) net
income of associated companies 105 (67) 216 53
Income as adjusted . . . . . $ 93,565 $ 75,855 $177,613 $145,812
Fixed charges:
Interest on indebtedness including
amortization of debt issue
costs and discount or premium
thereon. . . . . . . . . . $ 52,999 $ 46,669 $105,290 $ 90,378
Interest factor of annual
rentals(1) . . . . . . . . 687 1,073 1,500 2,080
Fixed charges. . . . . . . . $ 53,686 $ 47,742 $106,790 $ 92,458
Ratio of earnings to fixed
charges . . . . . . . . . . 1.7 1.6 1.7 1.6
(1) The interest portion of annual rentals is estimated to be one-third of
such rentals.
12