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, 1996
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 14, 1996, 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, 1996 and December 31, 1995 ......................3
Consolidated Statements of Income --
Three months ended March 31, 1996 and 1995 ................4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and 1995 ................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) 1996 1995
ASSETS
Cash and equivalents $ 9,800 $ 11,474
Investment in finance leases 2,558,358 2,548,944
Notes receivable 1,107,138 1,039,597
Investment in operating leases 906,014 904,391
Investment in leveraged leases 435,057 438,504
Investment in securities 1,143,842 1,064,841
Inventory held for sale or lease 120,084 107,514
Other receivables 14,997 21,759
Investment in associated companies 17,177 17,215
Office facilities at cost less accumulated
depreciation 8,960 8,741
Goodwill 176,123 177,551
Other assets 19,448 20,231
------ ------
Total assets $ 6,516,998 $ 6,360,762
========== ==========
LIABILITIES
Short-term notes payable $1,698,504 $ 1,417,754
Accounts payable 33,110 83,849
Accrued liabilities and lease deposits 187,338 205,186
Payable to Ford and affiliates 17,159 109,557
Deferred taxes on income 550,060 534,925
Long-term debt 3,153,546 3,171,637
--------- ---------
Total liabilities 5,639,717 5,522,908
========= =========
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDER'S EQUITY
Common stock * *
Additional capital 521,425 521,425
Net unrealized (loss) on available-for-sale
securities (3,878) (3,782)
Retained earnings 359,734 320,211
------- -------
Total shareholder's equity 877,281 837,854
------- -------
Total liabilities and shareholder's
equity $6,516,998 $ 6,360,762
========= =========
* 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) 1996 1995
---- ----
REVENUES $187,396 $155,584
------- -------
EXPENSES
Sales, administrative and general 18,137 16,963
Interest 75,763 66,082
Depreciation -- operating leases 32,214 29,329
Other 6,011 5,062
----- -----
Total expenses 132,125 117,436
------- -------
Income before taxes on income 55,271 38,148
Taxes on income 15,748 12,206
------ ------
NET INCOME $ 39,523 $ 25,942
====== =======
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) 1996 1995
---- ----
Net cash flows from operating activities $ 30,699 $ 39,121
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Recovery of equipment costs and residual interests 212,542 179,820
Cost of equipment acquired for lease (255,644) (220,245)
Notes receivable investments (163,758) (46,109)
Collections on notes receivable investments 84,880 21,879
Purchase of held-to-maturity securities (19,703) (5,372)
Maturity of held-to-maturity securities 24,320 4,611
Purchase of available-for-sale securities (42,616) (19,966)
Sale and maturity of available-for-sale securities 20,535 3,147
Purchase of other equity securities not subject
to SFAS 115 (64,633) -
Increase in deferred initial direct costs (3,195) (2,257)
Other 1,517 (4,821)
----- -----
Net cash used in investing activities (205,755) (89,313)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 87,946 278,826
Long-term debt repaid (106,037) (159,585)
Net increase in short-term borrowings 280,750 24,865
(Decrease) in funds collected for affiliates (49,277) -
Dividend to parent (40,000) (100,000)
------ -------
Net cash provided by financing activities 173,382 44,106
------- -------
Increase in cash and equivalents (1,674) (6,086)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 11,474 16,226
------ ------
CASH AND EQUIVALENTS AT END OF PERIOD $ 9,800 $ 10,140
----- ------
----- ------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Interest paid $ 59,228 $ 49,996
Income taxes paid 96 68
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Accrued interest on bond accretion and notes
receivable added to principal $ 1,086 $ 1,057
Lease equipment and notes receivable transferred
to inventory held for sale or lease 11,107 1,028
Fair market value adjustment on available-for-sale
securities (155) 538
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, 1995 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, 1995, 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,
1995. Certain amounts have been reclassified to conform to the 1996
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 LONG-LIVED ASSETS
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed of", effective January 1, 1996. 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 1996 vs. 1995
March 31, Increase/(Decrease)
(In thousands) 1996 1995 Amount %
Revenues $187,396 $155,584 $ 31,812 20%
------- ------- ------- --
Expenses
Sales, admin. & general 18,137 16,963 1,174 7
Interest 75,763 66,082 9,681 15
Depreciation 32,214 29,329 2,885 10
Other expenses 6,011 5,062 949 19
----- ----- --- --
Total expenses 132,125 117,436 14,689 13
------- ------- ------ --
Operating Profit $ 55,271 $ 38,148 $ 17,123 45%
======= ======= ====== ==
Revenues
Consolidated revenues increased $32 million or 20% during the
first three months of 1996 primarily as a result of a 22% increase in average
earning assets. The increased revenues also result from a $12 million increase
in gain on asset sales, primarily in the Municipal and Corporate Financing and
the Transportation and Industrial Financing business units.
Expenses
Total expenses for the first three months of 1996 increased $15 million
or 13%, and are discussed below.
Sales, administrative and general expenses increased $1 million or 7%
in the first three months of 1996. The increase is a result of higher expenses
to support the growing portfolio of earning assets and normal
inflationary increases offset in part by improved operating cost performance.
Interest expense increased $10 million or 15% for the three-month period,
reflecting an increase during the period in average borrowings from $3.89
billion in 1995 to $4.70 billion in 1996 to finance earning assets. This
increase was offset in part by a decrease in borrowing rates, which averaged
6.4% in the first three months of 1996 compared to 6.8% in the 1995 period.
Depreciation expense on operating lease equipment increased $3 million
or 10% in the 1996 three-month period, resulting from the 20% or $216 million
increase in the average investment in the cost of operating lease equipment
during the period. Of the increase in operating lease equipment, railcars
in the Rail Services business unit, which have longer useful lives and
depreciate more slowly than other operating lease equipment, increased $165
million or 34%.
Other Expenses increased $1 million or 19% in the 1996 first three months
due principally to a higher provision for losses (see Credit loss experience).
Income before taxes on income
Based upon the discussion above, operating profit for the first three
months of 1996 improved $17 million or 45% compared with the first three
months of 1995 results.
Taxes on income
Income tax expense was 28.5%of income before taxes in the 1996 three-month
period compared with 32.0% in the same 1995 period. The decrease is primarily
a result of the effect on the 1996 expense of tax benefits associated with the
Company's investments in qualified low income housing transactions.
RECENT DEVELOPMENTS
As previously reported, Ford is investigating the sale of all or a
portion of the Company.
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,
1996 1995 1995
---- ---- ----
Allowance for doubtful accounts
(in millions)
Beginning balance $ 60 $ 58 $ 58
Provision 2 1 6
Charge-offs - net 0 (1) (4)
- -- --
Ending balance $ 62 $ 58 $ 60
====== ===== =======
Percent of earning assets 1.0% 1.1% 1.0%
Total balance of accounts receivable
over 90 days past due at period end
(in millions) $ 18 $ 33 $ 23
Percent of earning assets 0.3% 0.6% 0.4%
Total earning assets (in millions)
Investment in finance leases
- net $ 2,558 $ 2,414 $ 2,549
Investment in operating leases
- net 906 725 904
Investment in leveraged leases
- net 435 279 438
Notes receivable 1,107 849 1,040
Investment in securities 1,144 720 1,065
Inventory held for sale or lease 120 92 108
Investment in associated companies 17 18 17
-- -- --
Total $ 6,287 $ 5,097 $ 6,121
====== ====== =======
During the first three months of 1996, accounts receivable over 90 days past
due decreased $5 million, as a result of the completion of foreclosure on an
office/retail complex, which was collateral for a $10 million note which was
delinquent at December 31, 1995. This decrease in accounts receivable over 90
days past due was offset in part primarily by three delinquent leases with gross
receivables totaling $4 million. Management is currently in the process of
attempting to restructure these transactions. Additions to the provision
increased $1 million when compared to the first three months of 1995, as a
result of management's evaluation of the adequacy of the allowance for doubtful
accounts.
Management has determined that one $6 million collateralized note will likely
become over 90 days past due by the end of the 1996 second quarter. The account
has been placed on non-accrual status, and management is presently reviewing its
options.
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,
1996 1995 1995
Business Equipment Financing 23% 25% 23%
Transportation and Industrial Financing 26 24 26
Fleet Services 11 12 11
Municipal and Corporate Financing 20 19 20
Real Estate Financing 8 9 8
Rail Services 12 11 12
-- -- --
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 14, 1996 By: /s/ Joseph J. Mahoney
Date Joseph J. Mahoney
Senior Vice President and
Chief Financial Officer
May 14, 1996 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) 1996 1995
---- ----
Earnings:
Income before taxes on income per statement
of income $ 55,271 $ 38,148
Add
Fixed charges 76,423 66,794
Distributions and proceeds in excess of net
income of associated companies 39 10
-- --
Income as adjusted $ 131,733 $ 104,952
======= =======
Fixed Charges:
Interest on indebtedness including amortization
of debt issue costs and discount or premium
thereon $ 75,763 $ 66,082
Interest factor of annual rentals (1) 660 712
-- --- ---
Fixed charges $ 76,423 $ 66,794
======= =======
Ratio of earnings to fixed charges 1.7 1.6
=== ===
(1) The interest portion of annual rentals is estimated to be one-third
of such rentals.