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 March 31, 1995
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 May 4, 1995, 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 DISCLOSURE
FORMAT.
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
I N D E X
Page No.
Part I - Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets --
March 31, 1995 and December 31, 1994 ...............3
Consolidated Statements of Income --
Three months ended March 31, 1995 and 1994 .........4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1995 and 1994 .........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)
March 31, December 31,
(In thousands) 1995 1994
----------- -----------
ASSETS
Cash and equivalents ........................................ $ 10,140 $ 16,226
Investment in finance leases ................................ 2,413,963 2,435,429
Notes receivable ............................................ 849,041 824,619
Investment in operating leases .............................. 724,602 711,602
Investment in leveraged leases .............................. 278,810 266,392
Investment in securities .................................... 720,003 700,355
Inventory held for sale or lease ............................ 92,550 86,816
Other receivables ........................................... 17,100 18,335
Investment in associated companies .......................... 17,828 17,838
Office facilities at cost less accumulated depreciation ..... 8,649 8,772
Goodwill .................................................... 181,934 183,395
Other assets ................................................ 21,806 20,439
----------- -----------
Total assets ............................................ $ 5,336,426 $ 5,290,218
=========== ===========
LIABILITIES
Short-term notes payable .................................... $ 1,362,466 $ 1,337,601
Accounts payable ............................................ 29,938 58,078
Accrued liabilities and lease deposits ...................... 120,662 113,847
Payable to Ford and affiliates .............................. 15,868 134,763
Deferred taxes on income .................................... 440,355 424,301
Long-term debt .............................................. 2,597,787 2,478,547
--------- ---------
Total liabilities ....................................... 4,567,076 4,547,137
--------- ---------
COMMITMENTS AND CONTINGENCIES ............................... -- --
SHAREHOLDER'S EQUITY
Common stock ................................................ * *
Additional capital .......................................... 521,425 521,425
Net unrealized (loss) on available-for-sale securities (3,233) (3,560)
Retained earnings ........................................... 251,158 225,216
--------- ---------
Total shareholder's equity .............................. 769,350 743,081
--------- ---------
Total liabilities and shareholder's equity .............. $ 5,336,426 $ 5,290,218
=========== ===========
*Less than one thousand dollars
- -------------------------------------------------------------------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
(Unaudited; in thousands) 1995 1994
-------- --------
REVENUES ........................ $155,584 $142,116
-------- --------
EXPENSES
Sales, administrative and general 16,963 16,733
Interest ........................ 66,082 52,291
Depreciation -- operating leases 29,329 32,575
Other ........................... 5,062 9,684
-------- --------
Total expenses .................. 117,436 111,283
-------- --------
Income before taxes on income ... 38,148 30,833
Taxes on income ................. 12,206 9,794
-------- --------
NET INCOME ...................... $ 25,942 $ 21,039
======== ========
- -------------------------------------------------------------------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
(Unaudited; in thousands) 1995 1994
---------- ----------
Net cash flow from operating activities ....................... $ 39,121 $ 16,055
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Recovery of equipment costs and residual interests ............ 179,820 163,442
Proceeds from sale of finance receivables ..................... -- 37,543
Cost of equipment acquired for lease .......................... (220,245) (173,986)
Notes receivable investments .................................. (46,109) (13,398)
Collections on notes receivable investments ................... 21,879 12,422
Purchase of held-to-maturity securities ....................... (5,372) (10,349)
Maturity of held-to-maturity securities ....................... 4,611 937
Purchase of available-for-sale securities ..................... (19,966) (6,420)
Sale and maturity of available-for-sale securities ............ 3,147 366
Increase in deferred initial direct costs ..................... (2,257) (1,784)
Other ......................................................... (4,821) (3,329)
---------- ----------
Net cash (used in)/provided by investing activities ........... (89,313) 5,444
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings ............................ 278,826 2,766
Long-term debt repaid ......................................... (159,585) (90,246)
Net increase in short-term borrowings ......................... 24,865 70,482
Dividend to parent ............................................ (100,000) -
---------- ----------
Net cash provided by/(used in) financing activities ........... 44,106 (16,998)
---------- ----------
(Decrease)/increase in cash and equivalents ................... (6,086) 4,501
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD .................. 16,226 6,708
---------- ----------
CASH AND EQUIVALENTS AT END OF PERIOD ......................... $ 10,140 $ 11,209
========== ==========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Interest paid ................................................. $ 49,996 $ 40,355
Income taxes paid ............................................. 68 158
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Accrued interest on bond accretion and notes receivable added
to principal .................................................. $ 1,057 $ 44
Lease equipment transferred to inventory held for sale or lease 1,028 --
Fair market value adjustment on available-for-sale securities 538 1,612
- -------------------------------------------------------------------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 for 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, 1994 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, 1994, 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,
1994. Certain amounts have been reclassified to conform to the 1995
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. IMPAIRMENT OF A LOAN
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 114, "Accounting by Creditors for Impairment of a Loan" and No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure", effective January 1, 1995. The effect on the Company's financial
statements was not material.
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
Three Months Ended 1995 vs. 1994
March 31, Increase/(Decrease)
----------------- -------------------
(In thousands) 1995 1994 Amount %
-------- -------- -------- --
Revenues ................... $ 155,584 $ 142,116 $ 13,468 9%
--------- --------- --------- --
Expenses
Sales, admin. & general 16,963 16,733 230 1
Interest .............. 66,082 52,291 13,791 26
Depreciation .......... 29,329 32,575 (3,246) (10)
Other expenses ........ 5,062 9,684 (4,622) (48)
--------- --------- --------- --
Total expenses ........ 117,436 111,283 6,153 6
--------- --------- --------- --
Operating Profit ........... $ 38,148 $ 30,833 $ 7,315 24%
========= ========= ========= =========
Revenues
Consolidated revenues increased $13 million or 9% during the first three
months of 1995 reflecting a 10% increase in average earning assets.
Expenses
Total expenses for the first three months of 1995 increased $6 million or
6%, and are discussed below.
Sales, administrative and general expenses increased $230,000 or 1% in the
first three months of 1995. The increase is a result of normal inflationary
increases offset in part by cost reduction actions.
Interest expense increased $14 million or 26% for the three-month period,
reflecting an increase during the period in average borrowings from $3.53
billion in 1994 to $3.89 billion in 1995 to finance earning assets and the
increase in leverage effected at the end of 1994. In addition, there was an
increase in borrowing rates, which averaged 6.8% in the first three months of
1995 compared to 5.9% in the 1994 period.
Depreciation expense on operating lease equipment decreased $3 million or
10% in the 1995 three-month period, although the average investment in the cost
of operating lease equipment increased 4% or $42 million during the period. The
reduction in depreciation expense is primarily a result of the increasingly
larger percentage of the operating lease portfolio invested in railcars, which
have longer useful lives and depreciate more slowly than other operating lease
equipment. In addition, the useful life of certain rail cars was extended at
the end of 1994, which reduced depreciation expense in the 1995 first quarter
approximately $725,000.
Other expenses decreased $5 million or 48% in the 1995 first three months
due in part to a lower provision for losses (see Credit loss experience). In
addition, there was a decrease in operating lease expenses of approximately $2
million, primarily as a result of a decline in maintenance expenses incurred by
the Rail Services business unit. In the first quarter of 1994, special
maintenance costs were incurred for mandated inspections for 1,475 pressure
tank cars sold at the end of 1994.
Income before taxes on income
Based upon the discussion above, operating profit for the first three
months of 1995 improved $7 million or 24% compared with the first three months
of 1994 results.
Taxes on income
Income tax expense was 32.0% of income before taxes in the 1995 three-month
period compared with 31.8% in the same 1994 period. The slight increase is a
result of a decrease in the percentage of income before taxes exempt from
Federal taxes.
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:
Three Months Ended Twelve Months Ended
March 31, December 31,
1995 1994 1994
------- ------- -------
Allowance for doubtful accounts (in millions)
Beginning balance ........................... $ 58 $ 55 $ 55
Provision ................................... 1 4 8
Charge-offs-net ............................. (1) (2) (5)
------- ------- -------
Ending balance .............................. $ 58 $ 57 $ 58
======= ======= =======
Percent of earning assets ................... 1.1% 1.2% 1.2%
Total balances of accounts receivable over
90 days past due at period end (in millions)$ 33 $ 46 $ 37
Percent of earning assets .................... 0.6% 1.0% 0.7%
Total earning assets (in millions)
Investment in finance leases - net ...... $ 2,414 $ 2,309 $ 2,435
Investment in operating leases - net .... 725 685 712
Investment in leveraged leases - net .... 279 188 266
Notes receivable ........................ 849 717 825
Investment in securities ................ 720 582 700
Inventory held for sale or lease ........ 92 58 87
Investment in associated companies ...... 18 18 18
------- ------- -------
Total ................................... $ 5,097 $ 4,557 $ 5,043
======= ======= =======
During the first quarter of 1995, accounts receivable over 90 days past due
decreased $4 million, because of reductions in accounts receivable over 90 days
past due in the Transportation and Industrial Financing unit. Additions to the
allowance for doubtful accounts decreased $3 million when compared to the first
quarter of 1994, primarily as a result of management's evaluation of the
adequacy of the loss reserve as well as decreased write-offs.
Earning assets by business unit
The table below summarizes the earning assets by business unit as a
percentage of the total.
March 31, December 31,
----------- ------------
1995 1994 1994
--- --- ---
Business Equipment Financing .......... 25% 30% 27%
Transportation and Industrial Financing 24 24 25
Fleet Services ........................ 12 10 11
Municipal and Corporate Financing ..... 19 17 18
Real Estate Financing ................. 9 10 9
Rail Services ......................... 11 9 10
--- --- ---
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.
27. Financial Data Schedule
(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.
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
May 4, 1995 By: /s/James G. Duff
Date
James G. Duff
Chairman and
Chief Executive Officer
May 4, 1995 By: /s/Robert A. Keyes, Jr.
Date
Robert A. Keyes, Jr.
Vice President, Corporate Controller
Exhibit 12
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended
March 31,
(Unaudited; in thousands) 1995 1994
-------- --------
Earnings:
Income before taxes on income
per statement of income ..................................................... $ 38,148 $ 30,833
Add
Fixed charges ............................................................... 66,794 53,105
Distributions and proceeds in excess of (less than)
net income of associated companies .......................................... 10 112
-------- --------
Income as adjusted ............................................................ $104,952 $ 84,050
======== ========
Fixed charges:
Interest on indebtedness including
amortization of debt issue costs and
discount or premium thereon ................................................. $ 66,082 $ 52,291
Interest factor of annual rentals (1) ......................................... 712 814
-------- --------
Fixed charges ................................................................. $ 66,794 $ 53,105
======== ========
Ratio of earnings to fixed charges ............................................ 1.6 1.6
=== ===
(1) The interest portion of annual rentals is estimated to be one-third of such
rentals.