16
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended December 31, 1996
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________to __________________.
Commission file number 0-15167
Trans Leasing International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-2747735
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3000 Dundee Road, Northbrook, Illinois 60062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 272-1000
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_____
The number of shares of Common Stock, Par Value $.01 Per Share, of the
Registrant outstanding as of February 12, 1997 was 4,025,755.
TRANS LEASING INTERNATIONAL, INC.
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Independent Accountants' Review Report 4
Condensed Consolidated Statements Of Operations 5
Three-month and Six-month periods ended
December 31, 1996 and 1995
(unaudited)
Condensed Consolidated Balance Sheets 6
December 31, 1996
and June 30, 1996
(unaudited)
Condensed Consolidated Statements of Cash Flows 7
Six-month periods ended
December 31, 1996 and 1995
(unaudited)
Notes to Condensed Consolidated Financial Statements 8
(unaudited)
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
PART I FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Stockholders and Board of Directors
Trans Leasing International, Inc.
Northbrook, Illinois
We have reviewed the accompanying condensed consolidated balance sheet
of Trans Leasing International, Inc. and subsidiaries (the "Company") as
of December 31, 1996, and the related condensed consolidated statements
of operations for the three-month and six-month periods ended December
31, 1996 and 1995, and the condensed consolidated statements of cash
flows for the six-month periods ended December 31, 1996 and 1995. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and of making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Trans Leasing
International, Inc. and subsidiaries as of June 30, 1996, and the
related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended (not presented herein); and in our
report dated September 6, 1996, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance
sheet as of June 30, 1996 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 12, 1997
TRANS LEASING INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months Six months
ended ended
December 31, December 31,
1996 1995 1996 1995
(In Thousands Except
Per Share Amounts)
REVENUES:
Finance lease income $ 8,446 $ 7,072 $16,595 $13,834
Operating lease income 629 316 1,193 599
Other 1,453 1,475 3,063 3,014
Total Revenues 10,528 8,863 20,851 17,447
EXPENSES:
Interest 4,407 3,866 8,571 7,543
General and administrative 3,984 3,107 7,599 5,859
Provision for uncollectible
accounts 1,311 1,311 2,680 2,557
Total Expenses 9,702 8,284 18,850 15,959
826 579 2,001 1,488
KEY-MAN LIFE INSURANCE INCOME 2,196 - 2,196 -
EARNINGS BEFORE INCOME TAXES 3,022 579 4,197 1,488
INCOME TAXES 308 222 766 570
NET EARNINGS $ 2,714 $ 357 $ 3,431 $ 918
EARNINGS PER COMMON SHARE $.68 $.09 $.85 $.22
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,016 4,098 4,029 4,148
See notes to condensed consolidated financial statements.
TRANS LEASING INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, June 30,
1996 1996
(In Thousands Except Share Data)
ASSETS
CASH $ 3,477 $ 4,528
RESTRICTED CASH 10,624 5,639
DIRECT FINANCE LEASES:
Future minimum lease payments 293,730 270,458
Estimated unguaranteed residual value 25,005 22,452
Total Direct Finance Lease Receivables 318,735 292,910
Less: Unearned lease income (49,511) (46,788)
Allowance for uncollectible accounts (10,578) ( 9,506)
Net investment in direct finance
leases 258,646 236,616
LEASE FINANCING RECEIVABLES, less allowance
for uncollectible accounts of $253 and 6,821 6,534
$238 respectively
EQUIPMENT UNDER OPERATING LEASES, net of
accumulated depreciation 9,821 7,709
FURNITURE, FIXTURES AND EQUIPMENT, net of
accumulated depreciation 1,967 1,811
INCOME TAXES RECOVERABLE 399 904
OTHER ASSETS 6,128 5,686
TOTAL ASSETS $297,883 $269,427
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 9,712 $ 9,183
NOTES PAYABLE TO FINANCIAL INSTITUTIONS 38,300 50,250
LEASE-BACKED OBLIGATIONS 197,473 159,567
SUBORDINATED OBLIGATIONS 19,620 20,730
DEFERRED INCOME TAXES 3,411 3,411
TOTAL LIABILITIES 268,516 243,141
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00;
authorized 2,500,000 shares; none issued
Common stock, par value $.01; authorized
10,000,000 shares; issued 4,798,500 shares,
outstanding 4,015,755 and 4,045,375
respectively 48 48
Additional paid-in capital 9,879 9,879
Retained earnings 21,835 18,646
Less 782,745 and 753,125 treasury shares
respectively, at cost ( 2,395) ( 2,287)
TOTAL STOCKHOLDERS' EQUITY 29,367 26,286
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $297,883 $269,427
See notes to condensed consolidated financial statements.
TRANS LEASING INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended December 31,
1996 1995
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 3,431 $ 918
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Leasing costs, primarily provision for
uncollectible accounts and
amortization of initial direct costs 3,730 3,622
Depreciation and amortization 1,465 784
Initial direct costs incurred ( 1,594) ( 1,287)
Changes in:
Accounts payable and accrued
expenses 529 1,402
Income taxes recoverable 505 430
Other assets ( 442) ( 1,423)
Other 64 ( 41)
Net cash provided by operating
activities 7,688 4,405
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collections on leases 47,035 39,437
Equipment purchased for leasing ( 74,434) ( 64,586)
Purchase of lease financing receivables ( 1,999) ( 1,827)
Purchase of property and equipment ( 3,983) ( 2,647)
Disposal of property and equipment 161 290
Net cash used in investing
activities ( 33,220) ( 29,333)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable to financial
institutions 37,250 60,400
Repayment of notes payable to financial
institutions ( 49,200) ( 74,925)
Issuance of lease-backed obligations 182,641 152,070
Repayment of lease-backed obligations (144,750) (110,714)
Repayment of subordinated obligations ( 1,110) -
Payment of dividends on common stock ( 242) ( 250)
Purchase of treasury stock ( 108) ( 523)
Net cash provided by financing
activities 24,481 26,058
NET INCREASE (DECREASE) IN CASH ( 1,051) 1,130
CASH, beginning of period 4,528 3,758
CASH, end of period $ 3,477 $ 4,888
See notes to condensed consolidated financial statements.
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Financial Statements:
The condensed consolidated balance sheet of Trans Leasing
International, Inc. and subsidiaries (the "Company") as of December 31,
1996, and the condensed consolidated statements of operations for the
three-month and six-month periods ended December 31, 1996 and 1995, and
the condensed consolidated statements of cash flows for the six-month
periods ended December 31, 1996 and 1995, have been prepared by the
Company without audit. The condensed consolidated balance sheet as of
June 30, 1996, has been taken from the audited financial statements of
that date. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position at December 31, 1996, and the results of operations
and cash flows for the periods presented have been made. The results of
operations for the period ended December 31, 1996, are not necessarily
indicative of the operating results for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's June 30, 1996
annual report to stockholders.
Certain reclassifications have been made to prior years to conform
with the presentation used in fiscal 1997.
Note B - Pending Accounting Standards:
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation", which encourages entities to adopt a fair
value based method of accounting for the compensation cost of employee
stock compensation plans. The statement allows an entity to continue
the application of the accounting method prescribed by APB No. 25,
"Accounting for Stock Issued to Employees", however pro forma
disclosures of net income and earnings per share, as if the fair value
based method of accounting defined by this statement had been applied,
are required. The disclosure requirements of this statement will be
adopted in the fourth quarter of fiscal 1997. Results of operations and
financial position will not be affected by the adoption of this
statement.
Statement of Financial Accounting Standards No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS 125), provides new methods of accounting and
reporting for transfers and servicing of financial assets and
extinguishments of liabilities for transaction occurring after December
31, 1996. The effect of adopting SFAS 125 is not expected to have a
material effect on the Company's financial position or results of
operations.
Note C - Insurance Proceeds:
On October 7, 1996, Richard Grossman, the Company's principal
shareholder, passed away. Prior to that date, Mr. Grossman held the
positions of Chairman of the Board, Chief Executive Officer and
President.
The Company was beneficiary on two key-man life insurance policies,
which insured the life of Richard Grossman. The proceeds from these
policies amounted to approximately $2,500,000, resulting in recognition
of life insurance income of $2,196,000, in the second quarter of fiscal
1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company's operations are comprised almost exclusively of lease
financing. The Company realizes net earnings to the extent that lease
income and related fees exceed interest expense, general and
administrative expense and a provision for uncollectible accounts.
Interest expense is the single largest expense of the Company and is a
function of the amounts borrowed by the Company to finance its lease
portfolio and the interest rates associated with those borrowings. The
difference between lease income and the cost of funds to finance the
leases from which such income is earned is generally referred to as the
"spread" in the portfolio.
Substantially all of the Company's lease receivables are written at
a fixed rate of interest for a fixed term. The Company's borrowings are
at both fixed and variable rates of interest. The Company borrows under
revolving credit facilities at variable interest rates (see "Liquidity
and Capital Resources") and periodically refinances that debt either
through a fixed-rate loan option in the revolving credit agreements,
securitization of lease receivables or the sale of debt in the public or
private markets. To the extent the Company refinances with fixed-rate
debt, the Company locks in the spread in its portfolio.
The Company has experienced growth in the total dollar amounts of
new lease receivables added to its portfolio during each of the last
five fiscal years, though there can be no assurances that this trend
will continue. In analyzing the Company's financial statements, it is
important to understand the impact of lease receivable growth during an
accounting period on lease income and net earnings.
For financial reporting purposes, substantially all of the
Company's leases are classified as direct finance leases and are
accounted for in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 13, "Accounting for Leases." The Company
accounts for its investment in direct finance leases by recording on the
balance sheet the total minimum lease payments receivable plus the
estimated residual value of leased equipment less the unearned lease
income. Unearned lease income represents the excess of the total minimum
lease payments plus the estimated residual value expected to be realized
at the end of the lease term over the cost of the related equipment.
Unearned lease income is recognized as revenue over the term of the
lease by the effective interest method, i.e., application of a constant
periodic rate of return to the declining net investment in each lease.
As a result, during a period in which the Company realizes growth in new
lease receivables, lease income should also increase, but at a lesser
rate.
Operating lease income is recognized as revenue when the rental
payments become due. Equipment under operating leases is recorded at
cost and depreciated on a straight-line basis over the estimated useful
life of the equipment, generally three to five years.
Initial direct costs incurred in consummating a lease, principally
commissions and a portion of salaries for personnel directly involved in
generating new lease receivables, are capitalized as part of the net
investment in direct finance leases and amortized over the lease term as
a reduction in the yield. An allowance for uncollectible accounts is
provided over the terms of the underlying leases as the leases are
determined to be uncollectible. See "Results of Operations" below for
further discussion.
The primary long-term funding method currently employed by the
Company is to securitize portions of its lease portfolio. This method
of funding is believed to afford the lowest cost long-term financing
available. These transactions are not reflected as sales of lease
receivables in the financial statements as the Company has an ongoing
economic interest in the securitized assets. As such, the leases remain
on the consolidated balance sheet and the income associated with such
leases is recognized over the respective lease terms.
Results of Operations
Finance lease income increased $2,761,000 (20.0%) in the first six
months of fiscal 1997 compared to the first six months of fiscal 1996,
and $1,374,000 (19.4%) in the second quarter of fiscal 1997 compared to
the same period of fiscal 1996. The increase was primarily due to a
20.8% increase in the net investment in direct finance leases from
December 31, 1995 to December 31, 1996.
Operating lease income increased $594,000 (99.2%) in the first six
months of fiscal 1997 compared to the first six months of fiscal 1996,
and $313,000 (99.1%) in the second quarter of fiscal 1997 compared to
the same period of fiscal 1996. The increase was primarily due to a
89.8% increase in the net cost of equipment under operating leases from
December 31, 1995 to December 31, 1996.
The growth in the Company's lease portfolio is the result of an
increase in the dollar amount of leases originated. The Company
believes that the dollar amount of leases originated has increased
primarily as a result of its increased marketing and selling activities,
greater name recognition of LeaseCard in the marketplace, and the
introduction of new products by equipment manufacturers. Lease-related
fees, primarily delinquency charges and lease continuance fees, have
increased as a result of the growth in the size of the Company's lease
portfolio.
Interest expense increased $1,028,000 (13.6%) in the first six
months of fiscal 1997 and $541,000 (14.0%) in the second quarter of
fiscal 1997 versus the comparable prior year periods due to an increase
in the amounts borrowed to finance the growth in the lease portfolio.
Interest expense as a percent of lease income decreased to 42.9% and
42.1% for the three-month and six-month periods ended December 31, 1996,
respectively, from 45.4% and 44.9% for the comparable fiscal 1996
periods. Interest expense is reported net of the impact of interest rate
swaps used to fix the rate on floating rate financings, the effect of
which was to decrease interest expense by $39,000 and $16,000 for the
first six months and the second quarter of fiscal 1996, respectively.
The Company currently holds no interest rate swap contracts.
General and administrative expense increased $1,740,000 (29.7%) in
the first six months of fiscal 1997 compared to the first six months of
fiscal 1996, and $877,000 (28.2%) in the second quarter of fiscal 1997
compared to same period of fiscal 1996. General and administrative
expense as a percent of lease income increased to 38.8% and 37.3% for
the three-month and six-month periods ended December 31, 1996,
respectively, from 36.5% and 34.8% for the comparable fiscal 1996
periods. The increase is primarily attributable to two factors. The
increase in the number of employees to accommodate the Company's
continued growth, and the increase in depreciation of equipment under
operating leases.
The provision for uncollectible accounts increased $123,000 (4.8%)
in the first six months of fiscal 1997 compared to the first six months
of fiscal 1996, and remained unchanged in the second quarter compared to
the same period of fiscal 1996. The provision for uncollectible amounts
as a percent of lease income decreased to 12.8% and 13.2% for the three-
month and six-month periods ended December 31, 1996, respectively, from
15.4% and 15.2% for the comparable fiscal 1996 periods.
Earnings, before income taxes and key-man life insurance income,
for the first six months of fiscal 1997 increased 34.5% to $2,001,000
compared with $1,488,000 for the first six months of fiscal 1996, and
42.7% to $826,000 in the second quarter, compared with $579,000 for the
same quarter of fiscal 1996. The earnings per share amounts exclusive of
the key-man life insurance income were $.13 and $.31 for the quarter and
the six months ended December 31, 1996 respectively. The increases in
earnings are primarily due to the increase in lease income and the
decrease in interest expense as a percent of lease income, as discussed
above. The effect of key-man life insurance income of $2,196,000 was to
increase earnings per share for the quarter and the six months ended
December 31, 1996, by $.55 and $.54 respectively.
Liquidity and Capital Resources
The Company has principally financed its operations, including the
growth of its lease portfolio, through borrowings under its revolving
credit agreements, issuance of debt and lease-backed obligations in both
the institutional private placement and public markets, principal
collections on leases and cash provided from operations.
Net cash used in investing activities, which was $33.2 million in
the first six months of fiscal 1997 and $29.3 million in the first
quarter of fiscal 1996, generally represents the excess of equipment
purchased for leasing over principal collections on leases. Net cash
provided by financing activities (the excess of borrowings under the
revolving credit agreement and issuances of debt and lease-backed
obligations over repayments of these debt instruments) was $24.5 million
in the first six months of fiscal 1997 and $26.1 million in the first
six months of fiscal 1996. The remaining funds used in investing
activities were provided by operating cash flows and cash on hand at the
beginning of the period. As of December 31, 1996, the Company had
outstanding commitments to purchase equipment, which it intended to
lease, with an aggregate purchase price of $4.6 million.
The Company borrows under its unsecured revolving credit agreement
(the "TLI Revolving Credit Facility") to fund its operations. The
maximum borrowing under the TLI Revolving Credit Facility is $30
million. At February 12, 1997, the outstanding loans under this
facility were $2.0 million and unused borrowing capacity was $28.0
million.
On November 26, 1996, the Company issued approximately $128 million
5.98% senior notes and approximately $13.5 million 6.64% subordinated
notes through a newly-formed limited-purpose business trust. The assets
of the trust securing such indebtedness include equipment leases and the
interest in the underlying equipment acquired from TL Lease Funding
Corp. IV (a special purpose subsidiary of the Company, "TLFC IV") which
in turn acquired such assets from the Company at various times prior to
the issuance of the notes. This securitization transaction was afforded
financing accounting treatment and there will be no gain or loss
recognized on consolidated earnings. The Company continues to service
the leases and the trust makes monthly principal and interest payments
to the note holders from lease collections. Proceeds from the
transaction were used to repay borrowings under the TLFC IV securitized
revolving credit facility in the amount of approximately $108 million,
to repay borrowings under the Company's revolving credit agreement in
the amount of $29.5 million and the remainder for general corporate
purposes. Upon completion of this transaction, the TLFC IV securitized
revolving credit facility was terminated.
On December 20, 1996, a new securitized revolving credit facility
was executed for TLFC IV in the amount of $75 million with an expiration
date of June 30, 1997. As of February 12, 1997, outstanding loans under
the TLFC IV revolving credit facility were $27.5 million and unused
borrowing capacity was $47.5 million.
The Company believes that the unused portions of the credit
facilities, increasing principal payments on leases and continued
placements of debt and lease-backed obligations in the public and/or
private markets will provide adequate capital resources and liquidity
for the Company to fund its operations and debt maturities. The Company
was in compliance with all of the provisions of its loan agreements and
its revolving credit facilities as of December 31, 1996.
As the Company has approached full utilization under its revolving
credit facilities, it has sold long-term debt and lease-backed
obligations in both the institutional private placement and public
markets and used the proceeds to reduce its revolving credit borrowings.
These long-term debt and lease-backed obligations are issued either with
fixed interest rates or with floating interest rates combined with an
interest rate hedge to lock in a fixed rate. The Company intends to
continue to issue long-term debt and lease-backed obligations with
either fixed interest rates or floating interest rates converted to a
fixed-rate through an interest rate hedge agreement, in both the
institutional private placement and public markets to reduce its
exposure to floating interest rates associated with revolving credit
borrowings.
On November 16, 1994, the Board of Directors authorized the
repurchase by the Company of up to 1,000,000 shares of its common stock.
As of December 31, 1996, 356,145 shares have been repurchased at a total
cost of $1,216,000 under this program. On November 7, 1996, the Board
terminated this stock repurchase program.
On February 3, 1997 the Board of Directors approved the payment of a
quarterly cash dividend in the amount of $.03 per share. The dividend
will be paid on February 26, 1997 to holders of record as of February
12, 1997.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE LITIGATION REFORM ACT OF 1995
Except for historical matters, the matters discussed in this Form 10-Q
are forward-looking statements that involve risks and uncertainties.
Forward-looking statements include, but are not limited to, statements
made under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company wishes to caution readers that in addition to the
important factors described elsewhere in this Form 10-Q, the following
important factors, among others, sometimes have affected and in the
future could affect, the Company's actual results and could cause the
Company's actual results during the remainder of fiscal 1997 and beyond,
to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company:
Portfolio Risk
The principal assets of the Company are its portfolio of lease
receivables and the unguaranteed residual value of its equipment.
Investment risks inherent in a leasing company include the possibility
that lease receivables might not be fully collectible and that equipment
might be sold at lease expiration or termination for less than the
residual value recorded on the Company's balance sheet.
Receivables Risk: Although the allowance for uncollectible accounts
carried on the Company's books has historically been adequate to provide
for losses associated with its lease receivables, changes in the
reimbursement policies of government or third-party payors, obsolescence
of equipment under lease, changes in the local, regional or national
economies, changes in federal tax laws or other factors could
significantly impact the Company's future delinquency and loss
experience, which could in turn have a material adverse effect on the
Company's earnings.
Residual Risk: When the Company enters into a lease from which it
expects to derive value through the resale of equipment at lease
expiration, it records an estimate of the expected resale value on the
Company's balance sheet as a residual interest. The growth in the
Company's equipment lease portfolio in recent years has resulted in
increases in the aggregate amount of recorded residual values.
Realization of residual values depends on factors not within the
Company's control, such as equipment obsolescence, whether the lease
expires or is terminated for default, whether the equipment is in fact
returned to the Company at the end of the lease and the condition of the
equipment when it is returned. Although the Company has historically
received a very high percentage of recorded residual values for expired
leases, there can be no assurance this will continue in the future.
Failure to realize residual values could have a material adverse effect
on the Company's earnings.
Interest Rate Risk
The Company's leases are at fixed rates but its warehouse lines, which
represent a significant portion of its borrowings, bear interest at
variable rates. Consequently, if interest rates were to increase,
earnings would be adversely affected. In addition, the Company's
ability to increase its yield on new receivables would be limited by
competitive and economic factors.
Financing
The Company's profitability depends, among other factors, on the size
of its lease portfolio, which in turn depends on the Company's ability
to obtain external financing to supplement cash flows available from
operations. The Company's principal sources of external financing have
been borrowings under its revolving credit agreements and public
offerings and private placements of debt and lease-backed obligations.
Although the Company has been successful in arranging these types of
fundings in the past, there can be no assurance that it will be able to
obtain funding in the future in amounts or on terms it deems necessary
or acceptable. The Company's inability to obtain financing would have a
material adverse effect on its operations. Covenants in certain of the
Company's debt agreements limit its ability to incur additional debt
above certain levels.
Under substantially all of the Company's debt agreements, a reduction
(including, under most of these debt agreements, reductions caused by
death) in the principal shareholder's ownership of the Common Stock
below certain levels ranging from 30% to 35% would constitute an event
of default or require prepayment. A default or required prepayment
under any of these debt agreements may also result in defaults and
required prepayments under other debt agreements.
Third Party Reimbursement
The Company believes that, due to the growing national concern with
rising health care costs, the amount the government and other third
party payors reimburse for individual health care procedures could be
reduced. Changes in third party reimbursement policies, especially if
such changes limit reimbursement for outpatient services (the type of
services generally provided by the Company's medical lessees), could
adversely affect the Company.
Competition
The Company competes with finance affiliates of equipment
manufacturers which sell products leased by the Company, banks and other
leasing and finance companies. Many of these organizations have greater
financial and other resources than the Company and as a consequence may
be able to obtain funds on terms more favorable than those available to
the Company. Some of these competitors may provide financing which is
less expensive than leasing from the Company.
PART II OTHER INFORMATION
ITEM 4. Submission of matters to a Vote of Security Holders.
(a) The Annual meeting of shareholders was held on December 13, 1996.
(b) The following directors were elected at the meeting:
Larry S. Grossman, Michael J. Heyman, Larry Bier, Clifford V.
Brokaw, III, Mark Matthews, John W. Stodder.
(c) The matters voted upon and the results of the voting were as
follows:
1. The shareholders voted 3,549,670 shares for each of the director
nominees and 3,000 shares abstained from voting.
2. The shareholders voted 3,551,970 shares to ratify the appointment
of Deloitte & Touche LLP as the Company's independent auditors for
the fiscal year ending June 30, 1997 and 700 shares abstained
from voting. There were no votes cast against this matter.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits Filed with Form 10-Q:
10.32 Amendment and Restated Contribution and Sale Agreement,
dated as of November 26, 1996, between Registrant and TL
Lease Funding Corp. IV, incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K of TL
Lease Funding Corp. IV, dated November 26, 1996.
10.33 Pooling and Servicing Agreement, dated as of November 26,
1996, among Registrant, TL Lease Funding Corp. IV and
TLFC IV Equipment Lease Trust 1996-1, incorporated by
reference to Exhibit 4.2 to the Current Report on Form 8-
K of TL Lease Funding Corp. IV, dated November 26, 1996.
10.34 Indenture, dated as of November 26, 1996, between TLFC IV
Equipment Lease Trust 1996-1 and Manufacturers and
Traders Trust Company, incorporated by reference to
Exhibit 4.1 to the Current Report on Form 8-K of TL Lease
Funding Corp. IV, dated November 26, 1996.
10.35 Trust Agreement, dated as of November 26, 1996, between
TL Lease Funding Corp. IV and Bankers Trust (Delaware),
incorporated by reference to Exhibit 4.3 to the Current
Report on Form 8-K of TL Lease Funding Corp. IV, dated
November 26, 1996.
10.36 Administration Agreement, dated as of November 26, 1996,
between TLFC IV Equipment Lease Trust 1996-1 and
Registrant, incorporated by reference to Exhibit 10.2 to
the Current Report on Form 8-K of TL Lease Funding Corp.
IV, dated November 26, 1996.
10.37 Amendment, dated as of December 30, 1996, to Credit
Agreement, dated as of January 31, 1996, among
Registrant, the Banks (as defined therein) and The First
National Bank of Chicago, as agent.
10.38 Amendment, dated as of December 30, 1996, to Amended and
Restated Note Agreement, dated as of November 30, 1994,
among Registrant and certain lenders named therein.
10.39 Amendment, dated as of December 30, 1996, to Amended and
Restated Note Agreement, dated as of November 30, 1994,
between Registrant and Massachusetts Mutual Life
Insurance Company.
10.40 Revolving Credit and Term Loan and Security Agreement,
dated as of December 20, 1996, between TL Lease Funding
Corp. IV and First Union National Bank of North Carolina.
10.41 Limited Recourse Agreement, dated as of January 21, 1997,
between Registrant and First Union National Bank of North
Carolina.
10.42 Contribution and Sale Agreement, dated as of January 21,
1997, between Registrant and TL Lease Funding Corp. IV.
10.43 Servicing Agreement, dated as of January 21, 1997, among
Registrant, TL Lease Funding Corp. IV and First Union
National Bank of North Carolina.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the fiscal
quarter ended December 31, 1996.
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.
TRANS LEASING INTERNATIONAL, INC.
(Registrant)
DATE: FEBRUARY 12, 1997 /s/LARRY S. GROSSMAN
Larry S. Grossman
Chairman of the Board of Directors &
Chief Executive Officer
DATE: FEBRUARY 12, 1997 /s/MICHAEL J. HEYMAN
Michael J. Heyman
President & Chief Operating Officer
Exhibit Index
Exhibit No. Description of Exhibit Page No.
10.37 Amendment, dated as of December 30, 18
1996, to Credit Agreement, dated as of
January 31, 1996, among Registrant,
the Banks (as defined therein) and The
First National Bank of Chicago, as
agent.
10.38 Amendment, dated as of December 30, 21
1996, to Amended and Restated Note
Agreement, dated as of November 30,
1994, among Registrant and certain
lenders named therein
10.39 Amendment, dated as of December 30, 24
1996, to Amended and Restated Note
Agreement, dated as of November 30,
1994, between Registrant and
Massachusetts Mutual Life Insurance
Company
10.40 Revolving Credit and Term Loan and 26
Security Agreement, dated as of
December 20, 1996, between TL Lease
Funding Corp. IV and First Union
National Bank of North Carolina
10.41 Limited Recourse Agreement, dated as 36
of January 21, 1997, between
Registrant and First Union National
Bank of North Carolina
10.42 Contribution and Sale Agreement, dated 76
as of January 21, 1997, between
Registrant and TL Lease Funding Corp.
IV
10.43 Servicing Agreement, dated as of 110
January 21, 1997, among Registrant, TL
Lease Funding Corp. IV and First Union
National Bank of North Carolina
27 Financial Data Schedule 194