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 March 31, 1997
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 May 2, 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 Nine-month periods ended
March 31, 1997 and 1996
(unaudited)
Condensed Consolidated Balance Sheets 6
March 31, 1997 and June 30, 1996
(unaudited)
Condensed Consolidated Statements of Cash Flows 7
Nine-month periods ended
March 31, 1997 and 1996
(unaudited)
Notes to Condensed Consolidated Financial Statements 8
(unaudited)
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
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 March 31, 1997, and the related condensed consolidated statements of
operations for the three-month and nine-month periods ended March 31,
1997 and 1996, and the condensed consolidated statements of cash flows
for the nine-month periods ended March 31, 1997 and 1996. 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
May 2, 1997
TRANS LEASING INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three months ended Nine Months ended
March 31, March 31,
1997 1996 1997 1996
REVENUES:
Finance and other lease related
income $ 9,764 $ 8,660 $28,920 $24,879
Operating lease income 717 389 1,910 988
Other 350 312 852 941
Total Revenues 10,831 9,361 31,682 26,808
EXPENSES:
Interest 4,607 4,013 13,178 11,556
General and administrative 4,136 3,630 11,735 9,489
Provision for uncollectible
accounts 1,365 1,297 4,045 3,854
Total Expenses 10,108 8,940 28,958 24,899
723 421 2,724 1,909
KEY-MAN LIFE INSURANCE INCOME - - 2,196 -
EARNINGS BEFORE INCOME TAXES 723 421 4,920 1,909
INCOME TAXES 277 161 1,043 731
NET EARNINGS $ 446 $ 260 $ 3,877 $ 1,178
WEIGHTED AVERAGE SHARES
OUTSTANDING:
PRIMARY 4,253 4,057 4,115 4,119
FULLY DILUTED 4,253 4,057 4,169 4,121
EARNING PER SHARE:
PRIMARY $.10 $.06 $.94 $.29
FULLY DILUTED $.10 $.06 $.93 $.29
See notes to condensed consolidated financial statements.
TRANS LEASING INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 31, June 30,
ASSETS 1997 1996
CASH $ 1,320 $ 4,528
RESTRICTED CASH 10,174 5,639
DIRECT FINANCE LEASES:
Future minimum lease payments 300,791 270,458
Estimated unguaranteed residual value 24,481 22,452
Total Direct Finance Lease Receivables 325,272 292,910
Less: Unearned lease income (49,109) (46,788)
Allowance for uncollectible accounts (10,689) ( 9,506)
Net investment in direct finance
leases 265,474 236,616
LEASE FINANCING RECEIVABLES, less allowance
for uncollectible accounts of $267 and
$238 respectively 7,259 6,534
EQUIPMENT UNDER OPERATING LEASES, net of
accumulated depreciation 10,462 7,709
FURNITURE, FIXTURES AND EQUIPMENT, net of
accumulated depreciation 1,829 1,811
INCOME TAXES RECOVERABLE 473 904
OTHER ASSETS 5,123 5,686
TOTAL ASSETS $ 302,114 $ 269,427
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 8,627 $ 9,183
NOTES PAYABLE TO FINANCIAL INSTITUTIONS 44,300 50,250
LEASE-BACKED OBLIGATIONS 197,538 159,567
SUBORDINATED OBLIGATIONS 18,510 20,730
DEFERRED INCOME TAXES 3,411 3,411
TOTAL LIABILITIES 272,386 243,141
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00;
authorized 2,500 shares; none issued
Common stock, par value $.01; authorized
10,000 shares; issued 4,809 shares,
outstanding 4,026 and 4,045 respectively 48 48
Additional paid-in capital 9,914 9,879
Retained earnings 22,160 18,646
Less 783 and 753 treasury shares
respectively, at cost (2,394) (2,287)
TOTAL STOCKHOLDERS' EQUITY 29,728 26,286
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 302,114 $ 269,427
See notes to condensed consolidated financial statements.
TRANS LEASING INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 3,877 $ 1,178
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 5,789 5,446
Depreciation and amortization 2,531 1,301
Initial direct costs incurred ( 2,367) ( 1,966)
Changes in:
Accounts payable and accrued expenses ( 557) 2,043
Income taxes recoverable 431 63
Other, net 569 ( 1,186)
Net cash provided by operating
activities 10,273 6,879
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collections on leases 73,905 64,989
Equipment purchased for leasing (108,151) ( 96,829)
Purchase of lease financing receivables ( 3,232) ( 2,631)
Purchase of property and equipment ( 5,731) ( 4,426)
Disposal of property and equipment 380 404
Net cash used in investing activities ( 42,829) ( 38,493)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable to financial
institutions 64,150 87,950
Repayment of notes payable to financial
institutions ( 70,100) ( 76,385)
Issuance of lease-backed obligations 210,517 152,864
Repayment of lease-backed obligations (172,564) (131,540)
Repayment of subordinated obligations ( 2,220) -
Payment of dividends on common stock ( 363) ( 371)
Issuance of common stock 35 -
Purchase of treasury stock ( 107) ( 558)
Net cash provided by financing
activities 29,348 31,960
NET INCREASE (DECREASE) IN CASH ( 3,208) 346
CASH, beginning of period 4,528 3,758
CASH, end of period $ 1,320 $ 4,104
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 March 31,
1997, and the condensed consolidated statements of operations for the
three-month and nine-month periods ended March 31, 1997 and 1996, and
the condensed consolidated statements of cash flows for the nine-month
periods ended March 31, 1997 and 1996, have been prepared by the Company
without audit. The condensed consolidated balance sheet as of June 30,
1996, has been derived 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 March 31, 1997, and the results of operations and cash flows
for the periods presented have been made. The results of operations for
the period ended March 31, 1997, are not necessarily indicative of the
operating results for the full year.
The Company has sold certain of its leases and related assets to
two special purpose, bankruptcy remote subsidiaries, TL Lease Funding
Corp. III ("TLFC III") and TL Lease Funding Corp. IV ("TLFC IV"), which
have in turn transferred leases to various trusts established by such
subsidiaries. Each of TLFC III and TLFC IV is an entity distinct from
Trans Leasing International, Inc., with its own assets and liabilities,
and in the event of a bankruptcy, the creditors of each such subsidiary
would be entitled to satisfy their claims from the assets of the
respective subsidiary prior to any distribution to Trans Leasing
International, Inc.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. Accordingly these financial
statements should 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.
In February of 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" which simplifies the current standards for computing earning
per share. The statement is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods.
Earlier adoption of this standard is not permitted. The statement will
be adopted in fiscal 1998 and will not impact the results of operations,
financial position or cash flows for the Company. The requirements of
this statement are not expected to materially impact the Company's
earnings per share calculation.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" which clarifies the disclosure
requirements related to type and nature of securities contained in an
entity's capital structure. The standard will be adopted in fiscal 1998
and will not impact the results of operations, financial position or
cash flows of the Company.
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 comprise, almost exclusively, lease
financing. The Company's net earnings are significantly influenced by
the level of invested assets, the related financing spread (i.e., the
excess of interest rates earned over interest rates incurred on
borrowings) and the quality of those assets. General and administrative
expenses and a provision for uncollectible accounts further reduce the
Company's net earnings.
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 floating rates of interest. The Company borrows under
revolving credit facilities at floating 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 will
from time to time, utilize interest rate swaps to the extent its
borrowings are at floating interest rates. Such swaps reduce the
Company's exposure to interest rate risk.
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.
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, the majority of the Company's
leases are classified as direct finance 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.
The Company also originates leases classified as operating leases.
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.
Results of Operations
Finance lease income increased $4,041 (16.2%) in the first nine
months of fiscal 1997 compared to the first nine months of fiscal 1996,
and $1,104 (12.7%) in the third quarter of fiscal 1997 compared to the
same period of fiscal 1996. The increase was primarily due to a 18.9%
increase in the net investment in direct finance leases from March 31,
1996 to March 31, 1997.
Operating lease income increased $922 (93.3%) in the first nine
months of fiscal 1997 compared to the first nine months of fiscal 1996,
and $328 (84.3%) in the third quarter of fiscal 1997 compared to the
same period of fiscal 1996. The increase was primarily due to a 66.3%
increase in the net cost of equipment under operating leases from March
31, 1996 to March 31, 1997.
The Company's lease portfolio 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. Growth in lease volume originated as measured
by future minimum lease payments, increased by $28,282 (21.0%), and
$2,047 (4.5%) for the first nine months and the third quarter of fiscal
1997 respectively, as compared to same periods in fiscal 1996. Lease-
related fees, late 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 $1,622 (14.0%) in the first nine months
of fiscal 1997 and $594 (14.8%) in the third 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 42.7% and 44.0% for
the nine-month and three-month periods ended March 31, 1997,
respectively, from 44.7% and 44.3% for the comparable periods in fiscal
1996. 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 $48 and $9 for the first nine
months and the third quarter of fiscal 1996, respectively. As of March
31, 1997, the Company was not party to any interest rate swap contracts.
General and administrative expense increased $2,246 (23.7%) in the
first nine months of fiscal 1997 compared to the first nine months of
fiscal 1996, and $506 (13.9%) in the third quarter of fiscal 1997
compared to same period of fiscal 1996. General and administrative
expense as a percent of lease income increased to 38.1% in the nine-
month period ended March 31, 1997, from 36.7% for the comparable period
in fiscal 1996. General and administrative expense as a percent of lease
income decreased to 39.5% in the three-month ended March 31, 1997, from
40.1% for the comparable period in fiscal 1996. The increase in general
and administrative expense is primarily attributable to 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 $191 (5.0%) in
the first nine months of fiscal 1997 compared to the first nine months
of fiscal 1996, and $68 (5.2%) in the third quarter compared to the same
period of fiscal 1996. The provision for uncollectible accounts as a
percent of lease income decreased to 13.0% and 13.1% for the three-month
and nine-month periods ended March 31, 1997, respectively, from 14.3%
and 14.9% for the comparable fiscal 1996 periods.
Earnings, before income taxes and key-man life insurance income,
for the first nine months of fiscal 1997 increased 42.7% to $2,724
compared with $1,909 for the first nine months of fiscal 1996, and 71.7%
to $723 in the third quarter, compared with $421 for the same quarter of
fiscal 1996. The primary earnings per share amounts exclusive of the key-
man life insurance income were $.10 and $.41 for the quarter and the
nine months ended March 31, 1997 respectively, compared to $.06 and $.29
for the same periods of fiscal 1996. 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 was to increase
earnings per share for the nine months ended March 31, 1997, by $.53.
Liquidity and Capital Resources
The Company historically has financed its operations, including the
growth of its lease portfolio, principally 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 $42.8 million in
the first nine months of fiscal 1997 and $38.5 million in the first nine
months 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 $29.3 million
in the first nine months of fiscal 1997 and $32.0 million in the first
nine 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 March 31, 1997, the Company had
outstanding commitments to purchase equipment, which it intended to
lease, with an aggregate purchase price of $5.6 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 May 2, 1997, the outstanding loans under this facility were
$13.5 million and unused borrowing capacity was $16.5 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 with 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 then existing TLFC IV securitized
revolving credit facility was terminated.
Effective as of December 20, 1996, TLFC IV entered into a new $75
million securitized revolving credit facility. On January 21, 1997, the
Company sold leases with a net book value of approximately $28.5 million
to TLFC IV for approximately $28 million in cash borrowed under the new
TLFC IV revolving credit facility. On April 4, 1997, the Company sold
leases with a net book value of approximately $23.3 million to TLFC IV
for approximately $23 million in cash borrowed under this facility. The
Company continues to service the leases sold to TLFC IV and used the
proceeds from the sales of leases to reduce revolving credit borrowings
under its unsecured revolving facility. As of May 2, 1997, outstanding
loans under the TLFC IV revolving credit facility were $47 million and
unused borrowing capacity was $28 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 March 31, 1997.
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 pursue this strategy of ensuring adequate liquidity through
both the institutional private placement and public markets, and to
reduce its exposure to floating interest rates associated with revolving
credit borrowings through interest rate hedge transactions.
On November 16, 1994, the Board of Directors authorized the
repurchase by the Company of up to one million shares of its common
stock. As of March 31, 1997, 356 thousand shares have been repurchased
at a total cost of $1,216 under this program. On November 7, 1996, the
Board terminated this stock repurchase program.
The Company has entered into a five-year lease commitment in order
to consolidate the location of its headquarters with certain of its
operating subsidiaries. The lease commencing on October 1, 1997, is
expected to improve the streamlining and coordination of certain of the
Company's operations.
On May 5, 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 May 26, 1997 to holders of record as of May 12, 1997.
On May 1, 1997, at a special meeting of the shareholders of the
Company, the shareholders approved the Company's 1996 Stock Option Plan.
The 1996 Stock Option Plan provides for the granting of stock options
with respect to one million shares of the Company's common stock to
directors and key employees of the Company.
In February of 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" which simplifies the current standards for computing earning
per share. The statement is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods.
Earlier adoption of this standard is not permitted. The statement will
be adopted in fiscal 1998 and will not impact the results of operations,
financial position or cash flows for the Company. Further, the
requirements of this statement are not expected to materially impact the
Company's earnings per share calculation.
Further, in February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 129, "Disclosure
of Information about Capital Structure" which clarifies the disclosure
requirements related to type and nature of securities contained in an
entity's capital structure. The standard will be adopted in fiscal 1998
and will not impact the results of operations, financial position or
cash flows of the Company.
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 historically has 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 certain 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 historically has
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
floating 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
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 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits Filed with Form 10-Q:
10.44 Consent to Extension, dated as of January 30, 1997, 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.
10.45 Trans leasing International Inc., 1996 Stock Option Plan.
10.46 Severance Agreement dated October 31, 1996 between
Registrant and Larry s. Grossman.
10.47 Severance Agreement dated October 31, 1996 between Registrant
and Joseph Rabito.
11 Statement re Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the fiscal
quarter ended March 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: May 2, 1997 /s/LARRY S. GROSSMAN
Larry S. Grossman
Chairman of the Board of Directors &
Chief Executive Officer
DATE: May 2, 1997 /s/MICHAEL J. HEYMAN
Michael J. Heyman
President & Chief Operating Officer
DATE: May 2, 1997 /s/STEPHEN J. HUPP
Stephen J. Hupp
Vice President, Finance
Exhibit Index
Exhibit No. Description of Exhibit Page No.
10.44 Consent to Extension, dated as of 18
January 30, 1997, 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.
10.45 Trans Leasing International Inc. 1996 19
Stock Option Plan.
10.46 Severance Agreement dated October 31, 23
1996 between Registrant and Larry s.
Grossman.
10.47 Severance Agreement dated October 31, 28
1996 between Registrant and Joseph
Rabito.
11 Statement re Computation of Per Share
Earnings. 34
27 Financial Data Schedule. 35