UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended June 30,1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
Securities registered pursuant to Sections 12(b) or 12(g) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.01 par value per share NASDAQ National Market
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
Registrant's best knowledge, in definitive proxy or information statements
incorporated by reference in Part II of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares of Common Stock, Par Value $.01 Per Share, of the
Registrant outstanding as of September 11, 1997, was 4,040,755. Excluding shares
beneficially owned by directors and officers of the Registrant, the aggregate
market value of such outstanding shares on September 11, 1997 $18,326,812 was
based upon the average of the closing bid and asked prices for the Common Stock
on the NASDAQ National Market on such date.
Documents Incorporated by Reference
Part III incorporates information by reference from the Registrant's
definitive Proxy Statement for its 1997 Annual Meeting to be filed with the
Securities and Exchange Commission within 120 days after the close of the fiscal
year.
1
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TABLE OF CONTENTS
PART I
ITEM PAGE
1. Business 3
2. Properties 16
3. Legal Proceedings 16
4. Submission of Matters to a Vote of Security Holders 16
PART II
ITEM
5. Market for the Registrant's Common Equity and Related
Stockholder Matters 17
6. Selected Financial Data 18
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
8. Financial Statements and Supplementary Data 27
9. Disagreements on Accounting and Financial Disclosure 48
PART III
ITEM
10. Executive Officers of the Registrant 49
11. Executive Compensation 50
12. Security Ownership of Certain Beneficial Owners and Management 50
13. Certain Relationships and Related Transactions 50
PART IV
ITEM
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 50
Signatures 56
2
FORM 10-K
TRANS LEASING INTERNATIONAL, INC.
PART I
Item 1. Business
GENERAL
Trans Leasing International, Inc. (hereafter "the Company" or "Trans
Leasing") leases medical, scientific and other equipment to physicians,
osteopaths, dentists and other health care providers. The Company also leases
general office equipment and automobiles to health care providers and the
general commercial market. The Company believes that its lessees lease equipment
from Trans Leasing for a variety of reasons, including the speed and convenience
of acquiring such equipment from Trans Leasing, the reduced initial cash outlays
the Company requires and the potential tax benefits.
At June 30, 1997, the Company's net investment in direct finance leases was
approximately $271 million, consisting of approximately 34,000 active leases.
Lease terms generally range from one to five years, with an average initial term
of approximately 38 months. The average cost of total equipment purchased per
lease originated during fiscal 1997 was approximately $13,000. The original
equipment cost of each item of lease equipment generally does not exceed
$100,000, although the Company may in the future lease more equipment with a
cost in excess of $100,000. The Company's primary market is the continental
United States, with only limited leasing activities occurring in Canada, Mexico
and Puerto Rico.
The Company also functions as an insurance agent, selling a limited amount
of property and casualty insurance to its lessees. The Company also purchases
lease receivables originated by third parties after Trans Leasing independently
verifies that such receivables meet its credit standards. At June 30, 1997, such
purchased lease receivables approximated $7.0 million. In addition, the Company
is currently evaluating opportunities with respect to larger industrial
equipment leases.
The Company believes the following factors have been critical to its
success in the past and will remain critical to its success in the future:
Business Strategy
Trans Leasing provides fast and convenient financing to creditworthy
applicants.
The Company leases equipment through its LeaseCard program, supported
by the Company's Instant Access program. Over 45,000 medical
professionals and 20,000 commercial accounts nationwide have utilized
the LeaseCard program to date.
Through its 72 member sales, marketing and customer service staff
located at the Company's headquarters and in its five regional sales
offices, the Company has developed strong relationships with equipment
manufacturers and dealers.
3
The Company distributes LeaseCards to lessees and potential lessees
because it believes that having a LeaseCard makes them more likely to
choose Trans Leasing over its competitors, even when dealing with
manufacturers and dealers that have not previously worked with Trans
Leasing.
The lessee market targeted by the Company has historically financed
their equipment purchases through banks, leasing and finance companies
and other financial institutions. Management believes that the time
required by many such financial institutions to process applications
for credit has created a significant market for quick financing for
less expensive equipment.
Credit Risk Management
The Company believes its credit loss experience compares favorably
with other "small-ticket" lessors primarily because of its credit
evaluation procedures, the repeat business it receives from current
lessees with known payment histories and the fact that much of the
equipment the Company leases is a source of income generation for the
lessees.
The Company believes that the diversified nature of the equipment it
leases reduces the potential impact of technological obsolescence,
which could adversely affect the Company's ability to collect lease
receivables and residual values.
Full Pay-Out & Operating Leases
A significant portion of the Company's equipment leases are full
pay-out leases, where the minimum lease payments in the aggregate
cover the full cost of the equipment plus an interest factor.
Full pay-out leases reduce the Company's exposure to obsolescence of
leased equipment.
Substantially all of the Company's operating leases are written for
automobiles, for which the Company has on average received the full
amount of residual values established at the time the leases were
initiated.
Funding Strategy
The Company continues to aggressively focus on minimizing its cost of
funds by utilizing a funding strategy based on securitization. This
financing method is believed to provide the Company with its lowest
cost long-term financing. The Company will continue to monitor the
private and public markets to ensure it maintains a cost-effective
financing program.
LEASED EQUIPMENT
The Company leases all types of moderately priced medical, scientific and
commercial equipment currently in demand. The Company believes that it has
benefited and will continue to benefit from technological advances, which
stimulate the demand for such equipment. The Company also leases all types of
automobiles.
4
The following table sets forth certain information about the categories of
equipment, which includes examples of the types of equipment included in each
category, leased by the Company as of June 30, 1997.
Original
Equipment Cost % of Number % of
Category of Equipment ($ in 000's) Total of Leases Total
----------------
Medical Equipment, including automated
laboratory systems, endoscopy systems,
ambulatory monitors and EKGs, diagnostic
imaging systems, surgical equipment and
diagnostic equipment, physical therapy
equipment, medical exam tables, dental
chairs, microscopes and optical equipment $184,685 41.4% 12,881 37.7%
Computer Equipment, including personal
computers and laptops, network
systems, desktop publishing and
document imaging systems 120,396 27.0% 10,846 31.8%
Automobiles 38,646 8.7% 1,476 4.3%
Office Equipment and Furniture,
including photocopiers, facsimile
machines, desks and furniture and
mail equipment 35,997 8.1% 3,489 10.2%
Telecommunications Equipment,
including telephone systems and voice
mail systems 15,993 3.6% 1,482 4.4%
Other, including industrial machine
tools, graphic arts equipment,
printing equipment and restaurant 49,846 11.2% 3,968 11.6%
equipment
Total Equipment Cost $445,563 100.0% 34,142 100.0%
The percentages of each equipment category relative to the total portfolio
may vary from time to time with marketing initiatives of equipment suppliers and
introductions of new or improved products. The Company believes that no single
type of equipment currently accounts for more than 10 percent of the lease
portfolio.
5
LESSEES
Two thirds of the Company's lessees are health care providers. The
remaining one third is composed of other professionals and general commercial
lessees. The following table provides the approximate lessee composition of
Trans Leasing's portfolio as of June 30, 1997:
Original Equipment Cost
Lessee Description ($ in Percentage
000's)
----------- ------------
Medical
General Practice $ 16,783 3.8%
Family Practice 19,597 4.4%
Internal Medicine 25,214 5.7%
OB/GYN 14,943 3.3%
Other MDs 68,234 15.3%
----------- --------
Total Doctors (MDs) 144,771 32.5%
----------- --------
Chiropractors 29,500 6.6%
Veterinarians 14,713 3.3%
Dentists 63,453 14.3%
Osteopaths 9,935 2.2%
Other Doctors (Non-MDs) 11,605 2.6%
----------- --------
Total Doctors (Non-MDs) 129,206 29.0%
----------- --------
Total Doctors (MDs and Non-MDs) 273,977 61.5%
----------- --------
Medical Institutions 24,594 5.5%
----------- --------
Total Medical 298,571 67.0%
----------- --------
Total Non-Medical 146,992 33.0%
----------- --------
Total for all Lessees $ 445,563 100.0%
=========== ========
The Company's lessees are located throughout the United States, the largest
concentrations of which are in heavily populated states such as California,
Florida, Texas, Illinois and New York. As of June 30, 1997, no single lessee (or
group of affiliated lessees) accounted for more than 2% of the Companys lease
portfolio.
6
MARKETING
The Company markets its leasing services through LeaseCard, which it
introduced in 1982 and which it believes was the first business-to-business
finance card widely used in the United States for purposes other than travel or
entertainment. The LeaseCard is offered to lessees and potential lessees by
salespeople representing the various equipment suppliers with which the Company
does business, as well as by the Company's own sales force.
The Company issues LeaseCards to lessees and potential lessees which meet
its credit standards. LeaseCards are issued for one-year periods and are
automatically renewed for additional one-year periods so long as holders
continue to maintain their credit standing with the Company. LeaseCard holders
who are medical professionals are entitled to lease up to $125,000 of equipment
and commercial accounts are entitled to lease up to $75,000 of equipment, with a
minimum of paperwork and delay. Larger credit limits are available to those
meeting additional credit criteria. LeaseCard provides the holder with
convenience and pre-arranged credit and enables equipment manufacturers and
dealers to concentrate their efforts on marketing equipment rather than
arranging financing.
To date, over 45,000 medical professionals and 20,000 commercial accounts
have used LeaseCard to lease equipment from the Company. A LeaseCard is issued
to every lessee with whom the Company has a lease. The Company also actively
solicits other potential lessees who do not currently hold LeaseCards through
various advertisements in medical and commercial trade publications, a
nationwide direct mail program; personal contacts at trade conventions and
telephone solicitation. The Company markets the LeaseCard to equipment suppliers
through direct mail solicitation, trade journal advertisements, participation in
trade shows and
telephone solicitation.
Another important part of the Company's marketing program is Instant
Access. Holders of active LeaseCards can obtain approval for new leases quickly
by calling the Company's toll free Instant Access line (800-YES-1000). Using the
Company's on-line balance and credit information, the Company's credit analysts
can typically approve a transaction within five minutes for existing customers
requesting transactions within their pre-approved credit limits. Non-holders can
call Instant Access and typically obtain preliminary approval within twenty
minutes if all credit information is readily available. Telephone inquiries to
Trans Leasing are normally initiated by potential lessees or equipment
salespeople on sales calls in customers' offices.
The Company also utilizes its own sales, marketing and customer service
staff of 72 people located at the Company's headquarters and in its five
regional sales offices to market its leasing services. The sales staff calls on
equipment manufacturers and dealers, lessees and prospective lessees, provides
information to equipment suppliers and their representatives regarding the
merits of the Company and of leasing in general and conducts seminars at the
suppliers' places of business. The Company participates in trade shows and
conventions around the country.
The Company has also developed joint advertising and marketing programs
with a number of major medical and commercial equipment manufacturers and
dealers. In a typical joint advertising program, the Company and the suppliers
prepare printed materials advertising the supplier's equipment which contain
specific references to LeaseCard and Trans Leasing.
6
TERMS OF LEASE AGREEMENTS
Substantially all of the Company's leases are full pay-out, non-cancelable
leases, where the minimum lease payments during the lease term cover the full
cost of the equipment plus an interest factor. However, as the Company's auto
lease portfolio continues to grow, the Company expects to enter into more
operating leases.
The Company utilizes a standard, non-cancelable lease agreement for
substantially all of its leases other than autos for which a different standard
lease form is used. Under the terms of the Company's standard leases, the lessee
is obligated to service the leased equipment and maintain it in good working
condition, to procure and maintain insurance on the leased equipment for the
benefit of the Company and to pay all property, sales and other taxes on the
leased equipment. The Company's leases generally provide for fixed lease
payments that are due and payable monthly over the lease term. In the event of a
default by the lessee, the lease agreement typically provides that the lessor
and its assignees have all the rights afforded creditors under the law to
protect their interest in the leased equipment, including the right to repossess
the leased equipment and, in the case of legal proceedings resulting from a
default, to recover certain additional damages.
While the lessee has the full benefit of the equipment manufacturers'
warranties with respect to the leased equipment, the Company's leases expressly
disclaim all warranties as to the leased equipment. Additionally, the leases
obligate the lessee to continue making lease payments regardless of any defects
in the equipment. Under the terms of the standard leases, the Company retains
title to the leased equipment and has the right to assign the lease without the
consent of the lessee. The lease terms do not provide the lessees with the
option to prepay though Trans Leasing does allow prepayments on a case by case
basis. Management estimates the number of early payments of the entire lease
balances to be approximately 5% of the total number of leases. When prepayments
are permitted, the lessee is typically required to pay the sum of future minimum
lease payments minus 80% of the remaining unearned income on the lease.
At the end of each lease, in accordance with arrangements typically made at
the time the lease is originated, the lessee will have the option (i) to renew
the lease on the same or renegotiated terms, (ii) to return the equipment or
(iii) to purchase the equipment at either (a) a fixed price determined at the
time the lease is originated (which may be $1 or a fixed percentage of the
original cost of the equipment or, in the case of leased vehicles, an amount
determined to be the value of the leased vehicle at the end of the lease) or (b)
the then fair market value of the equipment. In any case, if the lessee fails to
return or purchase the equipment or renew the lease, the lessee will be required
to make payments equal to the prior rent payments until the equipment is
returned or purchased or the lease is renewed. Historically, the majority of the
Company's lessees have elected to exercise their option to purchase the leased
equipment. Equipment which is not acquired or re-leased by the original lessee
can be sold, re-leased or otherwise disposed of by the Company or one of its
wholly-owned subsidiaries. The Company maintains its own warehouse and a staff
to re-market previously-leased equipment. The Company also has an arrangement
with a re-marketing agent to distribute principally all medical equipment
returned to the Company in exchange for an amount approximating the residual
value of the equipment.
As of June 30, 1997, approximately 94% of the lessees whose leases expired
in fiscal 1997 purchased the equipment covered by the expired leases,
approximately 3% returned such equipment to the Company and approximately 3% of
the lessees had not yet either purchased, re-leased or returned the equipment.
7
CREDIT REVIEW AND LOSS EXPERIENCE
Although comparative information from competitors is generally not
available, the Company believes its credit loss experience compares favorably
with other "small-ticket" lessors because (a) the Company utilizes a
comprehensive proprietary on-line credit evaluation procedure to screen lease
applications, (b) approximately 40% of new leases are with existing lessees who
have a credit history with the Company, (c) a substantial portion of equipment
leased is income-producing or necessary for the operations of the lessees
practice or business, (d) a majority of the Company's lessees are health care
providers and other professionals with high incomes and (e) a majority of the
leases are personally guaranteed by individual lessees or business owners.
The Company's credit department consists of five credit analysts and two
credit support staff. For each application the Company receives, the credit
department performs a credit review of the applicant, or its owners if the
applicant is a commercial business, which includes obtaining retail credit
reports from the major credit bureaus servicing the area in which the applicant
is located. In addition, with respect to transactions over $10,000 ($25,000 if
the lessee is in the medical or another healthcare field), the Company may
obtain bank verification of account activity in deposit accounts and loan
activity, including the length of time accounts have been opened, the average
balance maintained, the high dollar amount of credit extended and the payment
terms. The Company may elect not to verify bank information based on its review
of other available credit information.
On medical accounts, the Company also obtains an American Medical
Association report or its equivalent if the lessee is a dentist or osteopath.
These reports indicate the year the individual was licensed, the college
attended and year of graduation, the individual's medical specialty and whether
or not Board Certification has been obtained. For commercial accounts, the
Company may obtain a Dun & Bradstreet report. All of the information is stored
electronically on the Company's computer systems and is reviewed by one or more
persons depending upon the dollar amount involved. The Company also performs a
similar credit check on each equipment supplier and obtains other information to
verify that the equipment supplier is known to be reputable.
If a LeaseCard holder who has available credit as a result of an update and
review by the Company applies for a new lease, the Company also conducts a check
of the cardholder's payment history and status. If the lessee holds a LeaseCard,
but desires to lease equipment with a value in excess of the amount of the
lessee's available credit, or if it is a new applicant and the Company's credit
department has determined there is not enough information available through the
credit bureau, bank reports, American Medical Association reports and/or Dun &
Bradstreet reports, the Company may conduct additional credit checks which may
include a review of the lessee's current financial statements and most recent
tax return. Management estimates that in fiscal 1997, approximately 20% of
applications were turned down for credit reasons, approximately 25% were
terminated by the applicant and approximately 55% of the applications were
ultimately consummated.
The Company generally places an order to purchase equipment only after it
has completed the credit examination and received an executed lease from a
lessee. Upon obtaining the signed lease, a deposit check (if required), an
acceptance notice, an invoice and any additional documentation which may be
required, such as a personal guarantee, corporate resolution or evidence of
insurance, the Company's sales coordinators verify directly with the lessee that
all the items covered by the lease have been delivered and installed and are
working to the lessee's satisfaction. The Company then pays the vendor for the
equipment.
8
The Company utilizes its own 14 person in-house collection staff to solicit
late payments from lessees. The Company also employs outside counsel for
litigation related to collection matters. When an account is 7 days past due the
Company assesses a late fee equal to 10 percent of the original payment due. For
fiscal years 1997 and 1996, income from such late charges was $2.4 million and
$2.3 million, respectively. When any payment is 20 days past due (13 days if the
lease balance is greater than $20,000), the account is automatically inserted
into a collector's follow-up system. An account is considered delinquent if a
payment has not been received for 30 days beyond its due date.
The following table illustrates Trans Leasing's historical delinquency
rates. The increase in delinquencies from 3.6 percent at June 30, 1996 to 4.5
percent at June 30, 1997 results from competitive pressure as it relates to
credit criteria in the Company's primary markets with the principal increase
occurring in the 30-60 day delinquent category. Delinquencies in the over 90 day
category have not increased significantly.
Delinquency Rates
($ in 000's)
Remaining
Receivable Balance on
Delinquent Accounts
Receivable % of
Balance Amount Total
June 30, 1995................... $ 224,846 $ 6,115 2.7%
June 30, 1996................... 277,230 10,083 3.6%
June 30, 1997................... 314,335 14,111 4.5%
9
Accounts are normally written off if no payment has been received within
150 to 180 days. Accounts can be written off earlier if it is evident that no
further payment will be received. The following table illustrates Trans
Leasing's historical lease charge-off experience:
Fiscal Year Ended June 30,
($ in 000's)
1997 1996 1995 1994 1993
---------- ---------- ---------- --------- ----------
Allowance for Uncollectible
Accounts:
Beginning balance $ 9,506 $ 6,482 $ 4,047 $ 2,709 $ 2,181
Additions 7,154 6,667 5,328 6,489 3,690
Net charge-offs (5,758) (3,643) (2,893) (3,162)
(5,151)
---------- ---------- ---------- --------- ----------
Ending balance $ 10,902 $ 9,506 $ 6,482 $ 4,047 $ 2,709
========== ========== ========== ========= ==========
Net investment in direct finance
leases
(before allowance) $ 281,886 $ 246,063 $ 199,576 $ 170,864 $ 150,590
Net charge-offs divided
by net investment in direct 2.0% 1.5% 1.4% 3.0% 2.1%
finance leases
Ending allowance divided
by net investment in direct 3.9% 3.9% 3.2% 2.4% 1.8%
finance leases
Net charge-offs in fiscal year 1997 increased due to significant increases
in net investment in direct finance leases and more aggressive charge-off
policies instituted in 1997. Net charge-offs in fiscal years 1996 and 1995 were
somewhat favorable relative to historical norms, which resulted in increased
allowances as a percentage of net investment in direct finance leases at the end
of the respective fiscal years. The increase in net charge-offs during fiscal
year 1994 was primarily due to the write-off of one account at December 31, 1993
in the amount of $1,696,000 which reduced net earnings by $.24 per share. This
write-off was expensed in 1994. The Company is continuing to work with this
account to maximize the ultimate recovery.
REALIZATION OF RESIDUAL VALUE
Historically, the majority of the Company's lessees have elected to
exercise their options to purchase the leased equipment. Equipment which is not
acquired or re-leased by the original lessee is sold, re-leased or otherwise
disposed of by the Company. The Company maintains its own warehouse and staff to
re-market previously leased equipment. From time to time, the Company utilizes
various equipment dealers and vendors to re-market returned equipment, for which
it pays a commission based upon the amount received by the Company. The Company
has also entered into an agreement with a re-marketing agent to distribute
principally all previously leased medical equipment returned to the Company in
exchange for an amount approximating the residual value.
The growth in the Company's lease portfolio in recent years has resulted in
increases in the aggregate amount of recorded residual values. Substantially all
of the residual values on the Company's balance sheet as of June 30, 1997 are
attributable to leases that will expire before June 30, 2001. Realization of
such values depends on factors not within the Company's control, such as the
condition of the equipment, the cost of comparable new equipment and the
technological or economic obsolescence of the equipment. Although the Company
has, in aggregate, generally received approximately the full amount of recorded
residual values upon exercise of the purchase option by lessees for leases which
expired the last five years, there can be no assurance this realization rate
will be maintained.
10
During fiscal years 1997 and 1996, the Company put increased emphasis on
its auto leasing activities. Auto leases typically have residuals that represent
a higher percentage of the original cost of the auto than the average residual
percentage of the other types of equipment leased by the Company. The Company
has on average received approximately the full amount of anticipated residual
values for automobile leases which have expired during the last five years.
However, given the volatility of market prices for used autos and uncertainty as
to residual realization, there can be no assurance that the Company will
continue to be able to realize the amount of residuals anticipated at the time
of lease origination. The Company regularly monitors the residual value of its
leases.
MANAGEMENT INFORMATION SYSTEMS ($ in 000's)
The Company has developed automated information systems and
telecommunications capabilities tailored to support all areas within the
organization. Systems support is provided for accounting, tax, credit,
collections, operations, sales, sales support and marketing. The Company has
made significant investments in computer hardware and proprietary software. The
Company' computerized system provide management with accurate up-to-date data
which strengthens its management controls and assists in forecasting.
The Company at June 30, 1997 employed seven management information system
professionals and has developed a substantial amount of proprietary software.
Terminals in the Company's Northbrook, Illinois headquarters and branch offices
are linked 24 hours a day by dedicated telephone lines to the Company's main
computer system.
The Company's centralized data processing system provides instant support
for the marketing and service efforts of salespeople from the Company and
equipment manufacturers and dealers. The system permits the Company to generate
collection histories, vendor analyses, lessee reports and credit histories and
other data useful in servicing the lessees and equipment suppliers.
Expenditures during fiscal year 1997 for computer hardware were $309 and
for software were $85. Expenditures during fiscal year 1996 for computer
hardware were $169 and for software were $103. The Company completed an upgrade
of its data processing system in fiscal 1995 and spent approximately $498 for
new computer hardware and approximately $20 for software in that year.
COMPETITION
Leasing is only one of many financing alternatives available to the
Company's lessees and potential lessees. The leasing business is highly
competitive. Concerns engaged in the leasing business include: (a) finance
divisions, affiliates and subsidiaries of equipment manufacturers,
including some which sell products leased by the Company, (b) banks and
their affiliates or subsidiaries, some of which loan funds to the Company,
(c) other leasing and finance companies and (d) independently formed
partnerships or corporations operated for the specific purpose of leasing
equipment. Many of these organizations have substantially greater financial
and other resources than the Company. As a consequence they may be able to
obtain funds on terms more favorable than those available to the Company
and may provide financing which is less expensive than leasing from the
Company. However, the Company believes its financing services are more
convenient than those available from many alternative sources. The
Company/'s ability to compete effectively for profitable leasing business
will continue to depend upon its ability to procure financing on attractive
terms, to develop and maintain good relations with new and existing
equipment suppliers, to attract additional lessees by means of its
LeaseCard and other marketing programs and to maintain a very high level of
service to its lessees and vendors. However, there can be no assurance that
the Company can continue to do so. See Marketing".
11
Historically, the Company has concentrated on leasing moderately priced
medical and office equipment. The Company may in the future lease more expensive
equipment than it has in the past. As it does so, the Company's competition can
be expected to increase. Rising costs, changes in government regulations and
increased competition among health care providers have led to the development of
alternative health care delivery systems, including health maintenance and
preferred provider organizations and managed care programs. In addition, recent
surveys have indicated a continuing trend toward the formation of group medical
practices, which affects the nature and size of the Company's market. While the
Company does not believe that these developments have had a material impact on
its business to date, their long-term impact, including the possibility of
increased competition in the medical equipment leasing industry, cannot be
predicted.
HEALTH CARE TRENDS
The increasing cost of medical care has brought about federal and state
regulatory changes designed to limit government reimbursement of certain health
care providers. These changes include the enactment of fixed-price reimbursement
systems which involve determining rates of payment to hospitals, out-patient
clinics and private individual and group practices for specific illnesses in
advance of treatment. While the Company does not believe that these regulations
have had a material impact on its business to date, their long-term effect, as
well as that of future changes in legislative or administrative policies, cannot
be predicted.
One result of these regulatory changes is increased limitations on
in-patient hospital stays. The Company believes this trend has resulted in
greater outpatient services, where a large majority of the medical lessees in
the Company's market practice. The Company believes these regulatory changes, if
sustained, could result in greater need for medical equipment for outpatient
procedures and supporting office equipment. However, no assurance of actual
results from such regulatory changes can be made by the Company.
Rising health care costs may also cause non-governmental medical insurers,
such as Blue Cross and Blue Shield Plans and the growing number of self-insured
employers, to revise their reimbursement systems and regulations governing the
purchasing and leasing of equipment. Alternative health care delivery systems,
such as health maintenance organizations, preferred provider organizations and
managed care programs, have adopted similar cost containment measures. Although
these developments have not materially affected the Company's business to date,
future changes in the health care industry and the effect of such changes on the
Company's business cannot be predicted.
EMPLOYEES
At June 30, 1997, the Company had 157 full-time employees, none of whom
were represented by a labor union. Approximately 43 of the Company's employees
are engaged in the credit, collections and lease documentation areas,
approximately 72 are in the sales, marketing and customer service areas and 42
are engaged in the general administration area. Management believes that the
Company's employee relations are good.
12
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-K are
forward-looking statements that involve risks and uncertainties. Forward-looking
statements include, but are not limited to, statements under the following
headings: (i) under the heading "General - Business Strategy" as to the
likelihood that LeaseCard holders will choose the Company over competitors; (ii)
under the heading "General - Credit Risk Management" regarding credit loss
experience and the effects of technological obsolescence; (iii) under the
heading "Leased Equipment" regarding the benefit of technological advances; (iv)
under the heading "Credit Review and Loss Experience" regarding credit loss
experiences; (v) under the heading "Realization of Residual Value" as to
lessees' elections to exercise their purchase options; (vi) under the heading
"Competition" regarding the Company's services being more convenient than those
of others and the impact of health developments; and (vii) under the heading
"Health Care Trends" as to the benefit to the Company of limitations on
in-patient hospital stays and the effects of health care developments.
The Company wishes to caution readers that in addition to the important
factors described elsewhere in this Form 10-K, 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
fiscal 1998 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 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 in aggregate, generally received the full
amount of recorded residual values on 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.
13
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' 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' principal sources of external financing have been borrowings under its
revolving credit agreements, public offerings and private placements of debt and
lease-backed obligations. Although the Company has been successful in arranging
these types of funding 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.
The Company's debt agreements contained provisions triggering events of
default or requiring prepayment in the event the principal shareholder's
ownership of common stock fell below 35%. Upon the Principal shareholder's death
in fiscal 1997, these provisions were revised.
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.
14
Item 2. Properties
The Company leases its executive offices in Northbrook, Illinois under
leases which run through August 31, 1998 and May 31, 2002. The executive offices
are approximately 22,088 square feet in area. The Company also leases additional
office space in Orange County and Roseville, California, Boca Raton, Florida and
Plymouth Meeting, Pennsylvania. An additional office with a warehouse in
Grayslake, Illinois is also leased for the Company's auto leasing activities,
the telemarketing functions of its LeaseCard Direct Group and for the
re-marketing of equipment returned when leases expire or terminate. The Company
has entered into a new lease for a facility commencing in fiscal 1998, and
expiring in 2002. This facility, located in Deerfield, Illinois, will be used to
consolidate the Company's executive offices and Grayslake facility. Accordingly,
the Company's current lease in Northbrook will be sublet after taking occupancy
of the new facility. Management does not anticipate any material adverse impact
on its operations as a result of such sublet.
Item 3. Legal Proceedings
While the Company is from time to time subject to actions or claims for
damages in the ordinary course of its business, it is not now a party to any
material legal proceedings.
Item Submission of Matters to a Vote of Security Holders
a.) A special shareholders meeting was held on May 1, 1997.
b.) The matters voted upon and the results of voting were as follows:
i) To approve the Company's 1996 Stock Option Plan with
respect to 1,000,000 shares of the Company's common
stock (see Exhibit 10.5 to this Form 10-K).
Results: FOR 2,474,753
AGAINST 351,823
ABSTENTION 20,210
BROKER NONVOTER 0
ii) Warrants granted to certain directors to purchase in
the aggregate 285,000 shares of the Company's common
stock (see Exhibit 10.4 to this Form 10-K).
Results: FOR 2,589,153
AGAINST 229,123
ABSTENTION 28,510
BROKER NONVOTER 0
15
PART II
Item 5. Market for Registrant' Common Equity and Related Stockholder Matters
The Company's common stock is traded in the over-the-counter market and
reported on the NASDAQ National Market under the ticker symbol "TLII." The
common stock has been trading on NASDAQ National Market since April 1986, the
time when the Company's initial public offering took place.
The approximate number of beneficial holders of record of the Company's
common stock on September 11, 1997, was 66.
COMMON STOCK INFORMATION
For the
quarter ended Fiscal 1997 Fiscal 1996
------------------ ----------------------- -------------------------
High Low High Low
September 30 $ 3 5/8 $ 3 5/16 $ 3 1/2 $ 2 7/8
December 31 5 7/8 3 5/8 3 7/8 3 1/8
March 31 7 1/2 5 1/2 3 3/4 3 1/4
June 30 8 5 1/2 3 5/8 3 5/16
The holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors. The Board of Directors approved a dividend
in the amount of $.03 per share during each quarter of fiscal years 1997 and
1996, and in the fourth quarter of fiscal year 1995. There were no cash
dividends declared in the first three quarters of fiscal 1995. The declaration
of dividends in the future will be reviewed by the Board of Directors in light
of the Company's earnings, financial condition and capital requirements and
future dividends may be declared, reduced, or eliminated at the discretion of
the Board of Directors on the basis of these or other considerations. In
addition, the Company's credit facility restricts the payment of dividends on
the Company's common stock unless certain financial tests are met. Under the
most restrictive limitations, the Company shall not purchase its common stock,
pay cash dividends or redeem subordinated debt prior to maturity which, in
aggregate, exceed the sum of $2 million plus 50 percent of consolidated net
income computed on a cumulative basis plus net proceeds to the Company from the
issue or sale after December 31, 1992 of shares of capital stock of the Company
or warrants, rights or options to purchase or acquire any shares of its capital
stock. On August 5, 1997, the Board of Directors approved the payment of a
quarterly cash dividend in the amount of $.03 per share on August 26, 1997, to
holders of record as of August 15, 1997.
16
Item 6. Selected Financial Data
(In thousands, except common share and per common share amounts)
OPERATIONS STATEMENT DATA
Fiscal Year Ended June 30,
1997 1996 1995 1994 1993
------- --------- -------- --------- ---------
Revenues:
Finance and other lease $ 39,354 $ 33,915 $ 28,861 $ 26,520 $ 24,239
related income
Operating lease income 2,712 1,469 694 404 349
Other 1,161 1,234 974 565 407
------- --------- -------- --------- ---------
Total revenues 43,227 36,618 30,529 27,489 24,995
Expenses:
Interest 17,819 15,733 13,338 11,738 10,601
General & administrative 15,682 13,018 10,220 9,113 8,148
Provision for uncollectible
accounts 5,660 5,166 4,431 5,673 2,949
------- --------- -------- --------- ---------
Total expenses 39,161 33,917 27,989 26,524 21,698
Keyman Life Insurance Income (1)2,196 - - - -
------- --------- -------- --------- ---------
Earnings before income taxes
and cumulative effect on a
change in accounting 6,262 2,701 2,540 965 3,297
Income taxes 1,557 1,034 973 369 1,263
------- --------- -------- --------- ---------
Earnings before cumulative
effect of a change in 4,705 1,667 1,567 596 2,034
accounting
Cumulative effect of a change
in accounting for income taxes - - - (2) 155 -
------- --------- -------- --------- ---------
Net earnings $ 4,705 $ 1,667 $ 1,567 $ 441 $ 2,034
======= ========= ======== ========= =========
Earnings per common share:
Earnings before cumulative
effect of a change in $ 1.13 $ 0.41 $ 0.37 $ 0.13 $ 0.52
accounting
Cumulative effect of a change
in accounting for income taxes - - - (0.03) -
------- --------- -------- --------- ---------
Net earnings $ 1.13 $ 0.41 $ 0.37 $ 0.10 $ 0.52
======= ========= ======== ========= =========
Primary $ 1.13 $ 0.41 $ 0.37 $ 0.10 $ 0.52
Fully diluted $ 1.10 $ 0.41 $ 0.37 $ 0.10 $ 0.52
Weighted average common
shares outstanding
Primary 4,146 4,098 4,291 4,372 3,889
Fully diluted 4,263 4,098 4,291 4,372 3,889
(1) On 10/7/96, 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 keyman life insurance policies, which insured the life
of Richard Grossman.
(2) Represents the cumulative effect of adopting SFAS No. 109, "Accounting for
Income Taxes."
17
BALANCE SHEET DATA
June 30,
1997 1996 1995 1994 1993
Net investment in direct
finance leases $270,984 $236,616 $193,094 $166,817 $147,881
Total assets 311,036 269,427 226,383 193,735 170,075
Senior debt and
lease-backed obligations250,179 209,817 168,963 138,841 115,897
Subordinated debt 17,400 20,730 21,840 23,000 23,000
Stockholders'equity 30,285 26,286 25,670 24,779 24,342
Book value per share 7.49 6.50 6.09 5.67 5.57
Dividends declared per share .12 .12 .03 --
Item 7. 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
on invested assets 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 through either 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 amount of new lease
receivables added to its portfolio during each of the last five fiscal years,
though there can be no assurances that the growth 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.
18
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 unguaranteed 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.
On August 27, 1997 the Company entered into an agreement to sell
substantially all the net assets of the Company to General Electric Capital
Corporation (GECC). The gross sale proceeds approximate $46 million and involves
assumption by GECC of certain debt outstanding upon closing of the sale. Subject
to the required regulatory filings, the Company anticipates the sale transaction
will close in the second quarter of fiscal 1998. Net proceeds from the sale,
after consideration of certain post-closing expenses, will approximate $10.00
per share and be distributed to shareholders via a liquidating dividend in early
calendar year 1998. At this time, there can be no assurance as to the absolute
certainty of the occurrence of these events.
RESULTS OF OPERATIONS ($ in 000's)
Finance and other lease related income increased by $5,439 (16.0%) in
fiscal 1997 and $5,054 (17.5%) in fiscal 1996 due primarily to increases of
14.6% and 22.5%, respectively, in the net investment in direct finance leases.
The increase in the net investment in direct finance leases is due in part to
increases in lease receivables originated of 6.7% and 25.2% in fiscal 1997 and
1996, respectively. In addition, the increase in finance lease income is
attributable to increases in lease-related fees of $850 (27.9%) and $117 (4.0%),
respectively, in fiscal 1997 and 1996.
Operating lease income increased by $1,243 (84.6%) in fiscal 1997 and $775
(111.7%) in fiscal 1996 due primarily to increases of 46.5% and 97.8%,
respectively, in net equipment under operating leases. The increase in net
equipment under operating leases is due to increases in equipment purchased for
new operating leases of 20.3% and 43.2%, respectively, in fiscal 1997 and 1996.
The growth in the Company's lease portfolio is the result of an increase in
the number of leases originated in each fiscal year. The Company believes that
the number 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 documentation fees and delinquency
charges, have increased as a result of the growth in the size of the Company's
lease portfolio. Delinquency charges in fiscal 1997 increased to $2,410 from
$2,013 in fiscal 1996 and $1,877 in fiscal 1995. Delinquency rates increased to
4.5% at June 30, 1997 from 3.6% at June 30, 1996 and 2.7% at June 30, 1995. The
increases in delinquency rates from 1996 to 1997 were noted in the 30-60 day
delinquency category. Other delinquency categories have remained substantially
consistent with prior period results. The increase in delinquencies from 3.6% at
June 30, 1996 to 4.5% at June 30, 1997 results from competitive pressure as it
relates to credit criteria in the Company's primary markets.
19
Interest expense increased $2,086 (13.3%) in fiscal 1997 and $2,395 (18.0%)
in fiscal 1996 due to increases in the amounts borrowed to finance the growth in
the Company's lease portfolio. Interest expense as a percent of lease income
decreased to 42.4% in fiscal 1997 from 44.5% in fiscal 1996 and from 45.1% in
fiscal 1995 primarily as a result of more cost effective borrowing by the
Company.
General and administrative expense increased by $2,664 (20.5%) in fiscal
1997 and $2,798 (27.4%) in fiscal 1996 primarily as a result of increases in
salaries and benefits expense and sales-related expenses. Additionally, the
growth in the Company's operating lease portfolio resulted in increased
depreciation expense. The average number of personnel increased to 157 for
fiscal 1997 from 140 for fiscal 1996 and 117 for fiscal 1995. As such, general
and administrative expense as a percent of lease income was 37.3% in fiscal
1997, 36.8% in fiscal 1996 and 34.6% in fiscal 1995. The growth in the average
number of employees has been necessary to accommodate the Company's growth
during the period.
The provision for uncollectible accounts increased by $494 (9.6%) in fiscal
1997 and by $735 (16.6%) in fiscal 1996. The provision for uncollectible
accounts as a percent of lease income was 13.5% in fiscal 1997, 14.6% in fiscal
1996 and 15.0% in fiscal 1995.
Earnings before income taxes and keyman life insurance income increased by
$1,365 (50.5%) in fiscal 1997 and $161 (6.3%) in fiscal 1996. The increase in
earnings is primarily due to the increase in lease and lease related income and
the decrease in interest expense as a percent of lease income, as discussed
above.
Net earnings increased by $3,038 (182.2%) in fiscal 1997 and $100 (6.4%) in
fiscal 1996. In addition to the reasons for the increases noted above, the
increase in 1997 net earnings was also due to $2,196 of keyman life insurance
proceeds.
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 $49.5 million in fiscal
1997, $48.2 million in fiscal 1996 and $37.1 million in fiscal 1995, 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 issuing of debt and
lease-back obligations over repayments of these debt instruments) was $36.3
million in fiscal 1997, $38.7 million in fiscal 1996 and $28.3 million in fiscal
1995. The remaining funds used in investing activities were provided by
operating cash flows. As of June 30, 1997, the Company had outstanding
commitments to purchase equipment, which it intended to lease, with an aggregate
purchase price of $5.2 million.
20
The following paragraphs summarize certain terms of the Company's existing
debt agreements and instruments. The Company believes these terms may be
material to investors, but these summaries, which do not purport to be complete,
are subject to the detailed provisions of those documents and are qualified in
their entirety by reference to the agreements and instruments filed as exhibits
or incorporated by reference to this Form 10-K.
Revolving Credit Agreement
The Company borrows under its unsecured revolving credit agreement (the
"TLI Revolving Credit Facility") to fund its operations. As the Company has
approached full utilization under this facility, 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 secure a fixed borrowing cost. The maximum borrowing under the TLI
Revolving Credit Facility is $30 million. As of September 11, 1997, the
outstanding loans under this facility were $20 million and unused borrowing
capacity was $10 million.
Currently, the Company may borrow through an unsecured revolving credit
facility up to $30 million with interest paid quarterly. The Company, at its
option, pays interest equal to the prime rate or the Federal Funds rate plus .70
percent. The Company has the option at the end of every quarter to convert its
revolving loans outstanding under this facility into a fixed-rate loan, in which
case the principal amount is payable in 18 equal quarterly installments with
interest at 2 percent over a calculated rate based on LIBOR. If the revolving
credit agreement is not extended, all revolving loans will be due on January 29,
1998 and on such date the Company may convert the outstanding balance into a
two-year term loan bearing interest at the Company's choice of either prime rate
plus .25 percent or LIBOR plus 1 percent. As of September 11,1997, the
outstanding loans under this facility were $20 million and the unused borrowing
capacity was $10 million.
The unsecured revolving credit agreement contains numerous covenants which
include: a limitation on leverage, a minimum net worth requirement, a minimum
interest coverage requirement, dividend and other stock and debt repurchase
limitations and a maximum average original equipment cost of leased assets. At
June 30, 1997, the Company was in compliance with all covenants contained in the
revolving credit agreement.
21
Issuance of Senior and Subordinated Debt and Lease-Backed Obligations
The Company has outstanding debt under unsecured senior and subordinated
note placements, unsecured subordinated debentures and senior and subordinated
lease-backed obligations, all of which are summarized in the following table:
Principal Amount (in 000's)
----------------------------------------
Balance
at
Issuance Purchaser(s) or Interest June 30,
Date Security their Agent(s) Rate Original 1997 (1)
- ---------- ------------- ---------------- ---------- --------- ----------
June Unsecured Massachusetts 13.40% $ 10,000 $ 4,450
1992 Subordinated Mutual Life
notes Insurance
October Unsecured American Nat'l 10.50% 13,000 12,950
1992 Subordinated Bank & Trust
debentures Co., Trustee
June Unsecured Principal 5.83% 38,000 10,000
1993 senior Mutual Life
notes Insurance Co.,
Massachusetts
Mutual Life
Insurance Co.,
Phoenix Home
Life Mutual
Insurance Co.
and TMG Life
Insurance Co.
June Unsecured Phoenix Home 6.82% 4,000 4,000
1993 senior Life Mutual
note Insurance Co.
June Unsecured Core States 6.31% 10,000 3,400
1993 senior Bank, N.A.
note
August Lease-backed Public 6.65% 43,416 2,387
1994 notes
August Subordinated First Union 7.65% 6,054 4,760
1994 lease-backed Nat'l Bank of
note North Crolina
August Secured term First Union variable 1,000 1,000
1994 note Nat'l Bank (2)
of North
Carolina
October Lease-backed Public 6.40% 89,659 27,704
1995 notes
22
Principal Amounts (in 000's)
----------------------------------------
Balance
at
Issuance Purchaser(s) or Interest June 30,
Date Security Their Agent(s) Rate Original 1997 (1)
- ---------- ------------- ---------------- ---------- --------- ----------
October Subordinated Met Life Capital 7.55% 10,802 4,231
1995 lease-backed Corporation
note
November Lease-backed Public 5.98% 127,849 95,711
1996 notes
November Subordinated New York Life 6.64% 13,537 10,579
1996 lease-backed Mutual of
Note Omaha
December Leased-backed First Union LIBOR + 75,000 (3) 64,770
1996 Securitized Nat'l Bank .75%
Revolving of North
Credit Carolina
Facility
----------
TOTAL $ 245,942
==========
(1) The aggregate scheduled maturities of the securities are $159.6 million for
fiscal 1998, $51.3 million for fiscal 1999, $22.2 million for fiscal 2000
and $13.0 million thereafter.
(2) In addition to prepaid interest in the amount of $14,025 paid at inception,
interest payments include all investment earnings on the account.
(3) Effective June 30, 1997, the credit limit on this securitized revolver was
increased from $75 million to $85 million. Effective July 25, 1997 the
credit limit on this securitized revolver was increased from $85 million to
$125 million.
The unsecured senior and subordinated private placement indentures contain
numerous financial and other covenants, which include: limitations on total
leverage and on the ratio of subordinated debt to equity, a minimum net worth
requirement, a minimum fixed charge coverage requirement, dividend and other
stock and debt repurchase limitations and a minimum unencumbered asset
requirement. At June 30, 1997, the Company was in compliance with all covenants
contained in the senior and subordinated loan agreements.
The publicly issued subordinated debentures and the related indenture
contain financial and other covenants which include: limitations on dividends
and stock redemptions, the incurrence of additional senior and/or subordinated
debt, issuance of preferred stock and on transfers of assets by the Company to
special-purpose subsidiaries formed for the purpose of financing such assets. As
of June 30, 1997, the Company was in compliance with all requirements of this
agreement.
23
On December 20, 1996, the Company, through a wholly-owned special-purpose
financing subsidiary, TL Lease Funding Corp. IV ("TLFC IV"), established a
securitized revolving credit and term loan facility with a maximum borrowing
limit of $75 million (the "TLFC IV Revolving Credit Facility") with a national
banking institution. On June 30, 1997, the credit limit was raised to $85
million and the expiration of the facility was extended from June 30, 1997 to
July 31, 1997. On July 25, 1997, the credit limit was raised to $125 million
through December 31, 1997. TLFC IV pays interest on the revolving borrowings at
a rate equal to LIBOR plus .75 percent. TLFC IV may, at its option, convert the
revolving loans to a term loan with a maturity determined by the cash flows of
the leases held at the conversion date and at a rate of interest equal to LIBOR
plus 1 percent. Upon conversion to a term loan, TLFC IV would be required to
execute an interest rate hedge to fix the rate on this borrowing.
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 TLFC IV Revolving Credit Facility. On April 4, 1997, the
Company sold leases with a net book value of approximately $23.2 million to TLFC
IV for approximately $23 million in cash borrowed under this facility. On May
29, 1997, the Company sold leases with a net book value of approximately $20.9
million to TLFC IV for approximately $21 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 credit facility. As of September 11, 1997,
outstanding loans under the TLFC IV revolving credit facility were $82 million
and unused borrowing capacity was $43 million.
The Company believes that the revolving credit facilities, increasing
principal payments on leases and continued placement of debt in the public
and/or private markets will provide adequate capital resources and liquidity for
the Company to fund its operations and debt maturities, but there can be no
assurances that this will continue to be the case.
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. The Board determined
that this stock repurchase program is in the best interests of the Company and
its shareholders given the significant discount to book value at which the
Company's common stock is currently trading. As of June 30, 1997, a total of
782,745 shares have been repurchased at a total cost of $2,394 under this
program. Of this total amount, 29,620 and 166,000 shares were repurchased in
fiscal 1997 and fiscal 1996, respectively, at a cost of $107 and $559,
respectively.
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.
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.
The holders of common stock are entitled to receive dividends when and as
declared by the Board of Directors. The Board of Directors approved a dividend,
in the amount of $.03 per share during each quarter of fiscal years of 1997 and
1996, and the fourth quarter of fiscal 1995. There were no cash dividends
declared in the first three quarters of fiscal 1995. The declaration of
dividends in the future will be reviewed by the Board of Directors in light of
the Company's earnings, financial condition and capital requirements and future
dividends may be declared, reduced, or eliminated at the discretion of the Board
of Directors on the basis of these or other considerations. The Company"s credit
facility restricts the payment of dividends on the Company's common stock unless
certain financial tests are met. Under the most restrictive limitations, the
Company shall not purchase its common stock, pay cash dividends or redeem
subordinated debt prior to maturity which, in aggregate, exceed the sum of $2
million plus 50 percent of consolidated net income computed on a cumulative
basis plus net proceeds to the Company from the issue or sale after December 31,
1992 of shares of capital stock of the Company or warrants, rights or options to
purchase or acquire any shares of its capital stock. On August 5, 1997, the
Board of Directors approved the payment of a quarterly cash dividend in the
amount of $.03 per share on August 26, 1997, to holders of record as of August
15, 1997.
24
ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(SFAS 125), effective for the Company on January 1, 1997, provides new methods
of accounting and reporting for transfers and servicing of financial assets and
extinguishments of liabilities. The Company will apply SFAS 125 to
securitization transactions occurring on or after January 1, 1997. No such
securitizations have occurred since January 1, 1997. The effect of SFAS 125 is
not expected to have a material effect on the Company's financial position or
results of operations when applied to future securitization transactions.
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 were adopted in fiscal
1997. Results of operations and financial position were not affected by the
adoption of this statement.
In February 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.
25
Item 8. Financial Statements and Supplementary Data
Page
Consolidated Financial Statements
Independent Auditors' Report 28
Consolidated Balance Sheets as of June 30, 1997 and 1996 29
Consolidated Statements of Operations for the years ended
June 30, 1997, 1996 and 1995 30
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1997, 1996, and 1995 31
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995 32
Notes to Consolidated Financial Statements 33
26
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Trans Leasing International, Inc.
Northbrook, Illinois
We have audited the accompanying consolidated balance sheets of Trans Leasing
International, Inc. and subsidiaries as of June 30, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1997. These
financial statements are the responsibility of the management of Trans Leasing
International, Inc. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Trans Leasing International, Inc.
and subsidiaries at June 30, 1997 and 1996 and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 27, 1997
27
TRANS LEASING INTERNATIONAL, INC.
TRANS LEASING INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in 000's)
June 30,
1997 1996
ASSETS
CASH 4,178 $ 4,528
RESTRICTED CASH (Note A) 8,681 5,639
DIRECT FINANCE LEASES (Notes B and F):
Future minimum lease payments 307,076 270,458
Estimated non-guaranteed residual value 24,571 22,452
-------- ---------
Total Direct Finance Lease Receivables 331,647 292,910
Less: Unearned lease income (49,761) (46,847)
Allowance for uncollectible accounts (10,902) (9,506)
------- -------
Net Investment in Direct Finance Leases 270,984 236,557
LEASE FINANCING RECEIVABLES, less allowance for
uncollectible accounts of $258 and $238, respectively 7,055 6,568
EQUIPMENT UNDER OPERATING LEASES, net of accumulated depreciation 11,292 7,709
(Note C)
FURNITURE, FIXTURES and EQUIPMENT, net of accumulated 1,789 1,811
depreciation (Note D)
INCOME TAX RECOVERABLE 1,541 904
OTHER ASSETS (Note E) 5,516 5,711
-------- ---------
TOTAL ASSETS 311,036 $ 269,427
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 8,261 $ 9,183
NOTES PAYABLE TO FINANCIAL INSTITUTIONS (Note F) 39,037 50,250
LEASE-BACKED OBLIGATIONS (Note F) 211,142 159,567
SUBORDINATED OBLIGATIONS (Note F) 17,400 20,730
DEFERRED INCOME TAXES (Note H) 4,911 3,411
-------- ---------
TOTAL LIABILITES 280,751 243,141
COMMITMENTS AND CONTINGENT LIABILITIES (Note G)
STOCKHOLDERS' EQUITY (Note J):
Preferred stock, par value $1.00;
authorized 2,500 shares, none issued
Common stock, par value $.01; authorized 10,000 shares;
issued 4,823 shares, outstanding 4,041 and 4,045 shares, 48 48
respectively
Additional paid-in capital 9,764 9,879
Retained earnings 22,867 18,646
Less 783 and 753 shares, respectively, held in treasury, at cost (2,394) (2,287)
- --
------- -------
TOTAL STOCKHOLDERS' EQUITY 30,285 26,286
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 311,036 $ 269,427
======== =========
See notes to consolidated financial statements
28
TRANS LEASING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in 000's except per share amounts)
Year ended June 30,
-------------------------------------
1997 1996 1995
----------- ----------- ----------
REVENUES:
Finance and other lease related income $ 39,354 $ 33,915 $ 28,861
Operating lease income 2,712 1,469 694
Other 1,161 1,234 974
----------- ----------- ----------
Total Revenue 43,227 36,618 30,529
EXPENSES:
Interest 17,819 15,733 13,338
General and administrative 15,682 13,018 10,220
Provision for uncollectible accounts 5,660 5,166 4,431
----------- ----------- ----------
Total Expenses 39,161 33,917 27,989
KEYMAN LIFE INSURANCE INCOME (Note O) 2,196 - -
----------- ----------- ----------
EARNINGS BEFORE INCOME TAXES 6,262 2,701 2,540
INCOME TAXES (Note H) 1,557 1,034 973
----------- ----------- ----------
NET EARNINGS $ 4,705 $ 1,667 $ 1,567
=========== =========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING (Note A):
PRIMARY 4,146 4,098 4,291
----------- ----------- ----------
FULLY DILUTED 4,263 4,098 4,291
----------- ----------- ----------
EARNINGS PER SHARE (Note J):
PRIMARY $ 1.13 $ 0.41 $ 0.37
----------- -------- ----------
FULLY DILUTED $ 1.10 $ 0.41 $ 0.37
----------- ----------- ----------
See notes to consolidated financial statements.
29
TRANS LEASING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in 000's)
Additional
Common Stock Paid-In Retained Treasury
Shares Amount Capital Earnings Stock
------- ------- -------- ------- -------
BALANCE, June 30, 1994 4,371 $ 48 $ 9,879 $ 16,030 $ (1,178)
Treasury stock purchased (160) (550)
Dividends declared and paid (126)
Net earnings 1,567
------- --------- ---------- --------- ---------
BALANCE, June 30, 1995 4,211 48 9,879 17,471 (1,728)
Treasury stock purchased (166) (559)
Dividends declared and paid (492)
Net earnings 1,667
------- --------- ---------- --------- ---------
BALANCE, June 30, 1996 4,045 48 9,879 18,646 (2,287)
Common stock options 25 99
exercised
Warrants repurchased (214)
Treasury stock purchased (29) (107)
Dividends declared and paid (484)
Net earnings 4,705
------- --------- ---------- --------- ---------
BALANCE, June 30, 1997 4,041 $ 48 $ 9,764 $ 22,867 $ (2,394)
======= ========= ========== ========= =========
See notes to consolidated financial statements.
30
TRANS LEASING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in 000')
Year ended June 30,
1997 1996 1995
---------- ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 4,705 $ 1,667 $ 1,567
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 8,172 7,307 6,521
Depreciation and amortization 3,098 1,916 830
Initial direct costs incurred (3,215) (2,734) (2,397)
Changes in:
Deferred income taxes 1,500 568 1,016
Accounts payable and accrued expenses (922) 2,116 1,779
Income taxes recoverable (637) 560 487
Other assets 137 (1,097) (457)
Other - - (22)
---------- ---------- ------------
Net cash provided by operating activities 12,838 10,303 9,324
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collection on leases 104,028 96,331 75,627
Equipment purchased for leasing (143,096) (134,146) (106,826)
Purchase of lease financing receivables (3,872) (4,309) (1,788)
Purchase of property and equipment (7,508) (6,583) (4,581)
Disposal of property and equipment 934 481 419
---------- ---------- -----------
Net cash used in investing activities (49,514) (48,226) (37,149)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable to financial 167,875 131,992 126,225
institutions
Repayment of notes payable to financial (179,088) (130,917) (137,707)
institutions
Issuance of lease-backed obligations 271,931 201,879 126,382
Repayment of lease-backed obligations (220,356) (162,100) (84,778)
Payment of subordinated obligations (3,330) (1,110) (1,160)
Payment of dividends on common stock (484) (492) (126)
Common stock options exercised 99 - -
Repurchase of stock warrants (214) - -
Purchase of treasury stock (107) (559) (550)
---------- ---------- -----------
Net cash provided by financing activities 36,326 38,693 28,286
---------- ---------- -----------
NET (DECREASE) INCREASE IN CASH (350) 770 461
CASH, beginning of period 4,528 3,758 3,297
---------- ---------- -----------
CASH, end of period $ 4,178 $ 4,528 $ 3,758
========== ========== ===========
See notes to consolidated financial statements.
31
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in 000's except share amounts)
A. Summary of Significant Accounting Policies:
Business:
Trans Leasing International, Inc., (the "Company") leases a variety of
medical and general office equipment and automobiles to the medical and
commercial equipment markets.
Principles of Consolidation:
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Trans Leasing Insurance Services, Inc.,
LeaseCard Auto Group, Inc., Nuvotron, Inc., TL Lease Funding Corp. III and
TL Lease Funding Corp. IV. Intercompany accounts and transactions have been
eliminated.
Lease Accounting:
Completed lease contracts, which qualify as direct finance leases as
defined by Statement of Financial Accounting Standards ("SFAS") No. 13
"Accounting for Leases", are accounted for by recording on the balance
sheet the total future minimum lease payments receivable plus the estimated
nonguaranteed residual value of leased equipment less unearned lease
income. Unearned lease income represents the excess of the total future
minimum lease payments plus the estimated nonguaranteed 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. Initial direct costs
incurred in consummating a lease are capitalized as part of the 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. Accounts are normally written off if no payment has been
received within 150 to 180 days of their due dates. Accounts can be written
off earlier if it is evident that no further payment will be received.
Operating lease income is recognized as revenue when the rental
payments become due. Equipment under operating leases is recorded at cost
and depreciated to estimated residual values on a straight-line basis over
the estimated useful life of the equipment, generally three to five years.
The Company has in aggregate, generally received the full amount of
recorded residual values on expired leases.
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 provide 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
assets securitized. As such, the lease receivables securitized remain on
the consolidated balance sheet and the income associated with such leases
is recognized over the respective lease terms.
32
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS 125), effective for the Company on January 1, 1997,
provides new methods of accounting and reporting for transfers and
servicing of financial assets and extinguishments of liabilities. The
Company will apply SFAS 125 to securitization transactions occurring on or
after January 1, 1997. No such securitizations have occurred since January
1, 1997. The effect of SFAS 125 is not expected to have a material effect
on the Company's financial position or results of operations when applied
to future securitization transactions.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from these estimates.
Restricted Cash:
Restricted cash represents cash received related to securitized leases
which is held in segregated cash accounts pending distribution to the
lease-backed certificate holders.
Furniture, Fixtures and Equipment:
Furniture, fixtures, & equipment are recorded at cost and depreciated
using the straight-line method over their estimated useful lives, generally
three to seven years.
Income Taxes:
The provision for income taxes includes deferred taxes resulting from
temporary differences between the financial statement and tax bases of
assets and liabilities, using the liability method required by SFAS No.
109, "Accounting for Income Taxes."
Interest Rate Hedges:
Interest rate swaps and collars are utilized to hedge interest rate
risk on the Company's borrowings. Such financial instruments involve the
exchange of interest payments without the exchange of the underlying
notional principal amounts. The Company accrues a net payable or receivable
for the amount of interest to be paid or received under the swap or collar.
Such amounts represent an adjustment to interest expense and are recognized
contemporaneously with the item being hedged.
33
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Earnings Per Common Share:
Earnings per common share are computed on the basis of the weighted
average number of shares outstanding plus common stock equivalents, if
dilutive, applicable to warrants and options.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
which simplifies the current standards for computing earnings 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.
Stock-Based Compensation Plans:
During 1997, the Company adopted the disclosure-only option under SFAS
No. 123, "Accounting for Stock-Based Compensation". Accordingly, the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations continue to be used to account for
stock options and warrants issued under the Company's plans.
Reclassifications:
Certain reclassifications have been made to prior years to conform
with the presentation used in 1996.
34
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
B. Net Investment in Direct Finance Leases:
The Company leases equipment with lease terms generally ranging from
one to five years. Minimum payments to be received on lease contracts for
each of the succeeding five fiscal years ending June 30 are:
1998 $127,389
1999 89,535
2000 54,237
2001 27,612
2002 8,191
Thereafter 112
Initial direct costs are capitalized as part of the investment in
direct finance leases and are amortized over the lease term as a reduction
in yield. Initial direct costs capitalized are as follows:
1997 1996 1995
--------- ---------- ---------
Initial direct costs: $ 3,215 $ 2,734 $ 2,397
An analysis of the changes in the allowance for uncollectible accounts is
as follows:
Year ended June 30,
1997 1996 1995
---------- ---------- -----------
Balance, beginning of year $ 9,506 $ 6,482 $ 4,047
Additions 7,154 6,667 5,328
Uncollected lease receivables
written off, net of (5,758) (3,643) (2,893)
recoveries
---------- ---------- -----------
Balance, end of year $ 10,902 $ 9,506 $ 6,482
========== ========== ===========
35
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
C. Equipment Under Operating Leases:
The original cost of equipment under operating leases and the
accumulated depreciation are as follows:
Year ended June 30,
1997 1996
----------- -----------
Equipment under operating leases $ 14,413 $ 9,197
Less accumulated depreciation (3,121) (1,488)
$ 11,292 $ 7,709
=========== ===========
D. Furniture, Fixtures and Equipment:
The major classes of property and equipment are as follows:
Year ended June 30,
1997 1996
---------- ----------
Data processing equipment $ 1,780 $ 1,474
Furniture and fixtures 779 737
Personal computer and communication 1,008 772
equipment
Vehicles 156 60
Leasehold improvements 114 84
---------- ----------
3,837 3,127
Less accumulated depreciation (2,048) (1,316)
---------- ----------
$ 1,789 $ 1,811
========== ==========
36
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
E. Other Assets:
Other assets consist of:
Year ended June 30,
1997 1996
--------- ----------
Cash surrender value of life insurance
policies,
net of policy loans of $63 $ 510 $ 1,915
Deferred debt issuance costs 2,239 1,777
Due from lessees 1,177 836
Supplies 127 151
Deposits 549 484
Other 914 548
--------- ----------
$ 5,516 $ 5,711
========= ==========
F. Debt:
Year ended June 30,
1997 1996
---------- -----------
Notes Payable to Financial Institutions:
Unsecured, floating rate (6.33% at June
30, 1997),
Twelve-month revolving $ 21,637 $ 20,650
Other notes payable to financial
institutions:
Unsecured, interest rate of 5.83%,
due in installments through March 31, 10,000 20,000
1998
Unsecured, interest rate of 6.31%,
due in installments through September 3,400 5,600
30, 1998
Unsecured, interest rate of 6.82%,
due in installments through June 1, 1998 4,000 4,000
---------- -----------
$ 39,037 $ 50,250
---------- -----------
37
TRANS LEASING INTERNATIONAL, INC.
Year ended June 30,
1997 1996
----------- ----------
Lease-backed obligations:
Variable interest rate (6.4375% as of
June 30, 1997), Due December 31, 1997 $ 64,770 $ 71,995
Variable interest rate (5.50% as of June
30, 1997), Due March 25, 1998 1,000 1,000
Interest rate of 6.65%,
Due in installments through June 25, 2000 2,387 15,276
Interest rate of 7.65%,
Due in installments through June 25, 2000 4,760 4,759
Interest rate of 5.98%,
Due in installments through November 20, 95,711 -
2002
Interest rate of 6.64%,
Due in installments through November 20, 10,579 -
2002
Interest rate of 6.40%,
Due in installments through September 27,704 59,281
15, 2001
Interest rate of 7.55%,
Due in installments through September 4,231 7,256
15, 2001
----------- ----------
211,142 159,567
Subordinated obligations:
Unsecured, interest rate of 10.5%,
Due October 15, 2002 12,950 12,950
Unsecured, interest rate of 13.4%,
Due June 30, 1999 4,450 7,780
----------- ----------
$ 17,400 $ 20,730
=========== ==========
The Company may borrow up to $30 million under an unsecured revolving
credit facility that pays interest quarterly. The Company, at its option,
pays interest equal to the prime rate or the Federal Funds rate plus .70
percent, with the option at the end of every quarter to convert its
revolving loans into a fixed-rate loan, in which case the principal amount
is payable in 18 equal quarterly installments with interest at 2 percent
over a calculated rate based on LIBOR. If the revolving credit agreement is
not extended, all revolving loans will be due on January 29, 1998, and on
such date the Company may convert the outstanding balance into a two-year
term loan bearing interest at the prime rate plus .25 percent or LIBOR plus
1 percent. As of September 11, 1997, the outstanding loans under this
facility were $20 million and the unused borrowing capacity was $10
million.
38
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company's loan agreements contain certain restrictive covenants.
The more significant of these covenants require the Company to maintain a
ratio of earnings before taxes and interest expense to interest expense of
1.15 to 1.0 on a rolling four quarter basis; require the Company to
maintain a ratio of debt, (excluding subordinated debt due in more than one
year), to equity, (including subordinated debt due in more than one year),
not to exceed 4.0 to 1.0; prohibit consolidated tangible net worth, plus
aggregate net assets of securitization subsidiaries, plus the aggregate
amount paid by the Company on or after December 31, 1992, to redeem its
stock from being less than $17 million plus 50 percent of the Company's
consolidated cumulative net income from January 1, 1993; provide that the
Company shall not purchase its common stock, pay cash dividends or redeem
subordinated debt prior to maturity which, in aggregate, exceed the sum of
$2 million plus 50 percent of consolidated net income computed on a
cumulative basis plus net proceeds to the Company from the issue or sale
after December 31, 1992 of shares of capital stock of the Company or
warrants, rights or options to purchase or acquire any shares of its
capital stock; and prohibit the Company's activities in mergers and
acquisitions without the consent of the lender.
At June 30, 1997, the Company was in compliance with all covenants.
The Company, through its wholly-owned special-purpose financing
subsidiary, TL Lease Funding Corp. IV ("TLFC IV"), established a
securitized revolving credit and term loan facility with various historical
maximum borrowing limits of up to $85 million (the "TLFC IV Revolving
Credit Facility") with a national banking institution. TLFC IV pays
interest on the revolving borrowings at a rate equal to LIBOR plus .75
percent. On April 18, 1997, TLFC IV entered into an interest rate swap
agreement which fixed the interest rate of a portion of the securitized
revolving credit facility. TLI receives floating rate LIBOR in exchange for
paying a fixed rate of 6.65% on an amortizing notional outstanding balance.
The notional amount outstanding as of June 30, 1997 was $46.5 million.
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 TLFC IV Revolving Credit Facility. On April 4,
1997, the Company sold leases with a net book value of approximately $23.2
million to TLFC IV for approximately $23 million in cash borrowed under
this facility. On May 29, 1997, the Company sold leases with a net book
value of approximately $20.9 million to TLFC IV for
39
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
approximately $21 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 credit facility. As of June 30, 1997, outstanding loans
under the TLFC IV revolving credit facility were $65 million and unused
borrowing capacity was $20 million.
Maturities of debt (notes payable to financial institutions,
subordinated obligations, lease-backed obligations and leases discounted
with financial institutions) during each of the succeeding five years
ending June 30 and thereafter are as follows:
1998 $182
1999 51
2000 22
2001 -
2002 -
Thereafter 13
G. Commitments:
The Company leases its office facilities and certain office equipment.
Future minimum rental commitments under such leases as of June 30, 1997,
and thereafter are as follows:
1998 $ 944
1999 742
2000 695
2001 683
Thereafter 632
The Company has entered into a five-year lease commitment in order to
consolidate the location of its headquarters with certain operating
subsidiaries. The lease commencing on October 1, 1997 and expiring in 2002
is expected to improve the streamlining and coordination of certain of the
Companyss operations.
The Company leases its two executive offices in Northbrook, Illinois
under leases which run through August 31, 1998, and May 31, 2002. Upon
commencement of the new lease mentioned above, the existing leases will be
sublet.
Total rent expense for the years ended June 30, 1997, 1996 and 1995
was $593, $543, and $353, respectively.
As of June 30, 1997, the Company had outstanding commitments to
purchase equipment, which it intended to lease, with an aggregate purchase
price of $5.2 million.
40
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
H. Income taxes:
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of the assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes
and (b) operating loss and tax credit carryforwards. The tax effects of
significant items comprising the Company's net deferred tax liability as of
June 30, 1997 and 1996 are as follows:
Year ended June 30,
1997 1996
----------- -----------
Deferred Tax Liabilities:
Difference between book and tax
Investment in equipment leased $ 15,361 $ 14,312
Deferred Tax Assets:
Operating loss carry-forwards 2,523 2,955
Tax credit carry-forwards:
Investment tax credits 2,361 2,464
Alternative minimum tax credits 5,566 5,482
-------- --------
10,450 10,901
----------- -----------
Net deferred tax liability $ 4,911 $ 3,411
=========== ===========
No valuation allowances as of June 30, 1997, and 1996 are considered
necessary.
At June 30, 1997, the Company has $6,587 of net operating loss
carryforwards available for federal income tax purposes. The net operating
loss carryforwards expire as follows:
Loss Year
$ 1,220 2005
1,170 2006
1,136 2009
3,061 2012
41
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
At June 30, 1997, the Company's investment tax credit carryforwards
expire as follows:
ITC Year
$ 631 1998
784 1999
699 2000
247 2001
At June 30, 1997, the Company has $5,566 of alternative minimum tax
credit carryover, which is available to offset future regular taxable
federal income taxes.
The provision for income taxes is as follows:
Year ended June 30,
1997 1996 1995
----------- ---------- ----------
Federal:
Current $ 57 $ - $ -
Deferred 1,234 685 810
----------- ---------- ----------
1,291 685 810
State:
Current - 254 50
Deferred 266 95 113
----------- ---------- ----------
266 349 163
-------- ------- -------
$ 1,557 $ 1,034 $ 973
=========== ========== ==========
The differences between the statutory and effective tax rates are as
follows:
Year ended June 30,
1997 1996 1995
------------ ----------- -----------
U.S. statutory income tax rate 34.0% 34.0% 34.0%
State income taxes less federal 4.3 4.3 4.3
benefit
Nontaxable life insurance proceeds (11.9) - -
Other (1.5) - -
============ =========== ===========
Effective income tax rate 24.9% 38.3% 38.3%
============ =========== ===========
42
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
I. Profit Sharing Plan:
The Company has established a profit sharing 401(k) plan for its
employees. The Company matches 30 percent of participants' contributions.
Contributions charges to earnings for the years ended June 30, 1997, 1996
and 1995 were $81, $70 and $49, respectively.
J. Stock Option Plans:
The Company has three stock-based incentive plans, the Employee Stock
Option and Performance Unit Plan (the "1986 Plan"), the Executive
Management Group Stock Option Plan (the "1992 Plan") and the 1996 Stock
Option Plan. Options are granted under these plans at exercise prices equal
to the fair value of the Company's common stock on the applicable grant
date. Options vest either immediately or ratably over a three year period.
Options granted may be exercised when vested and will generally expire five
years after the date of grant.
A summary of the status of the Company stock-based incentive plans is
as follows:
Weighted-
average
1997 Exercise price 1996 1995
----------- ----------- ----------- ------
Beginning balance 493,195 $ 4.06 208,039 176,883
Granted 536,000 5.09 391,156 31,156
Exercised (25,000) 3.95 - -
Cancelled or expired (193,039) 4.62 (106,000) -
Ending balance 811,156 4.53 493,195 208,039
Options exercisable at
end of year 681,156 4.31 493,195 208,039
Weighted average fair
value of options
granted
during the year $ 4.42 $ 3.27 $3.96
43
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The weighted-average fair value (at grant date) per option granted
during 1997 is $4.42. The fair value of each option grant is estimable on
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used or grants in 1997; dividend
yield of 1.7%; volatility factor of 44%, risk-free interest rate of 6.14%;
and expected life of 4.05 years.
Information on the range of exercise prices for options outstanding as
of June 30, 1997:
Options Outstanding Options Exercisable
Range of Number Weighted-average Number
exercise outstanding Weighted-average remaining exercisable Weighted-average
prices at 6/30/97 exercise price contractual life at 6/30/96 exercise price
$3.25-$6.25 811,156 $ 4.53 4.09 681,156 $ 4.31
The Company has adopted the financial disclosure provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" with respect to its stock-based incentive
plans. The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for these plans as allowed for under
the provisions of SFAS No. 123. Accordingly, no compensation cost has been
recognized for its stock-based incentive plans as the exercise price of the
option equals market price at the grant date. Had compensation cost for
these plans been determined on the fair value at the grant date for options
granted, consistent with the provisions of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the following pro
forma amounts:
Year ended June 30, 1997
-------------------------------
1997 1996 1995
------ ----- ------
Net Income As reported $ 4,705 $ 1,667 $ 1,567
Pro forma 3,592 824 1,491
Primary earning per As reported 1.13 0.41 0.37
Share Pro forma 0.87 0.21 0.35
Fully diluted As reported 1.10 0.41 0.37
earnings
per share Pro forma 0.84 0.21 0.35
K. Supplementary Statement of Earnings Information:
Advertising expenses for the years ended June 30, 1997, 1996 and 1995
were $771, $802, and $535, respectively.
44
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
L. Estimated Fair Value of Financial Instruments:
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Values of Financial Instrument". The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgement is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts. SFAS No. 107 also excludes certain items from its disclosure
requirements such as the Company's investments in leased assets.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value.
Long-Term debt: Fair value of the Company's long-term debt is
determined utilizing current market rates based upon the market rate of
debt with similar terms and conditions. The fair value of the Company's
long-term debt is approximately $267,685 as of June 30, 1997; the carrying
value is $267,579. As of June 30, 1996, the fair value and carrying value
of the Company's long-term debt were $231,539 and $230,547, respectively.
Interest Rate Swaps: The fair value of the Company's interest rate
hedge instruments is estimated at the amount the Company would pay or
receive to terminate the instrument. At June 30, 1997, the fair value of
such agreements was a net liability of $348. No interest rate swap
agreements were outstanding at June 30, 1996.
Other Financial Investments: The carrying value in the balance sheet
as of June 30, 1997, for cash, receivables (other than lease receivables),
accrued liabilities and revolving line of credit and variable rate notes
payable approximate fair value because of the short maturity of the
investments or bear interest rates that approximate current market rates.
M. Supplementary Statement of Cash Flow Information:
Cash paid (received) during the year for:
Year ended June 30,
1997 1996 1995
Interest $17,167 $14,754 $12,416
Income taxes 699 (49) (529)
45
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
N. Dividends Declared:
The holders of Common Stock are entitled to receive dividends when and
as declared by the Board of Directors. The Board of Directors approved a
dividend, in the amount of $.03 per share during each quarter of fiscal
year 1997. The declaration of dividends in the future will be reviewed by
the Board of Directors in light of the Company' earnings, financial
condition and capital requirements and future dividends may be declared,
reduced, or eliminated at the discretion of the Board of Directors on the
basis of these or other considerations. The Company' credit facility
restricts the payment of dividends on the Company' common stock unless
certain financial tests are met. Under the most restrictive limitations,
the Company shall not purchase its common stock, pay cash dividends or
redeem subordinated debt prior to maturity which, in aggregate, exceed the
sum of $2 million plus 50 percent of consolidated net income computed on a
cumulative basis plus net proceeds to the Company from the issue or sale
after December 31, 1992 of shares of capital stock of the Company or
warrants, rights or options to purchase or acquire any shares of its
capital stock. On August 5, 1997, the Board of Directors approved the
payment of a quarterly cash dividend in the amount of $.03 per share on
August 26, 1997 to holders of record as of August 15, 1997.
O. Insurance Proceeds:
On October 7, 1996, Richard Grossman, the Company' 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 keyman life insurance policies,
which insured the life of Richard Grossman. The proceeds from these
policies amounted to approximately $2,500, resulting in recognition of life
insurance income of $2,196, in the second quarter of 1997.
P. Subsequent Event:
On August 27, 1997 the Company entered into an agreement to sell
substantially all the assets of the Company to General Electric Capital
Corporation (GECC). The gross sale proceeds approximate $46 million and
involves assumption by GECC of certain debt outstanding upon closing of the
sale. Subject to the required regulatory filings, the Company anticipates
the sale transaction will close in the second quarter of fiscal 1998. Net
proceeds from the sale, after consideration of certain post-closing
expenses, will approximate $10.00 per share and be distributed to
shareholders via a liquidating dividend in early calendar 1998.
46
Item 9. Disagreements on Accounting and Financial Disclosure
Item 9. No change of the Company's independent accountants has occurred
in fiscal 1996 or fiscal 1997.
47
PART III
Item 10. Executive Officers of the Registrant
The following table sets forth certain information regarding the
Company's executive officers.
Name Age Position
Larry S. Grossman 48 Chairman of the Board and
Chief Executive Officer
Michael J. Heyman 44 President and
Chief Operating Officer
Joseph Rabito 39 Executive Vice President,
Operations
Stephen J. Hupp 33 Vice President, Finance
Larry S. Grossman is Chairman of the Board of Directors and Chief
Executive Officer of the Company since October, 1996; Chairman and Chief
Executive Officer of FluoroScan Imaging Systems, Inc. (the manufacturer of
the FluoroScan Imaging System, a fluoroscopic Device) from 1982 to 1986 and
from 1989 to 1996; Chief Operating Officer and Director of Pain Prevention
Labs, Inc. (a manufacturer of an electronic dental anesthesia device) from
1986 to 1989; and President, Chief Executive Officer and Director of the
Company from 1981 to 1982 and Vice President and Director of the Company
from 1972 to 1981.
Michael J. Heyman is President and Chief Operating Officer of the
Company since October, 1996; President and Chairman of MOKSHA Worldwide,
Inc. (an international marketing and merchandising concern in the apparel
industry) since 1994; and Senior Vice President of Heyman Corporation (an
international marketing and merchandising concern in the apparel industry)
from 1982 to 1994.
Joseph Rabito has been Executive Vice President of Operations since
1996. Prior to that he was Vice President of Operations from 1985 to 1996.
Since joining the Company in 1981, Mr. Rabito has held various positions in
the Company's credit department.
Stephen J. Hupp is Vice President of Finance since March, 1997. Prior
to joining the Company, Mr. Hupp served as Controller for GE Capital's Auto
Leasing business from 1996 to 1997 and, prior to that, was a Senior Manager
with Deloitte & Touche LLP from 1986 to 1996.
Other information required herein is hereby incorporated by reference
from the definitive Proxy Statement for the 1997 Annual Meeting of the
Company.
48
Item 11. Executive Compensation
The information required herein is hereby incorporated by reference
from the definitive Proxy Statement for the 1997 Annual Meeting of the
Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required herein in hereby incorporated by reference
from the definitive Proxy Statement for the 1997 Annual Meeting of the
Company.
Item 13. Certain Relationships and Related Transactions
The information required herein is hereby incorporated by reference
from the definitive Proxy Statement for the 1997 Annual Meeting of the
Company.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report. The page number,
if any, listed opposite a document indicates the page number in the
sequential numbering system in the manually signed original of this Report
where such document can be found.
(1) The consolidated financial statements filed as part of the Report are
listed in Item 8.
(2) Financial Statement Schedules
Schedules have been omitted because they are not applicable, or not
required, or because the required information is shown in the
consolidated financial statements or notes thereto.
(3) Exhibits
3.1(a) Restated Certificate of Incorporation, incorporated by
reference to Exhibit 3.1(a) to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-50228).
3.1(b) Certificate of Amendment to Restated Certificate of
Incorporation, dated December 12, 1986, incorporated by reference to
Exhibit 3.1(b) to the Registrant's Registration Statement on Form S-1
(Registration No. 33-50228).
3.1(c) Certificate of Amendment to Restated Certificate of
Incorporation, dated as of November 17, 1992.
49
3.2(a) By-laws, incorporated by reference to Exhibit 3.2(a) to the
Registrant's Registration Statement on Form S-1 (Registration No.
33-50228).
3.2(b) Amendment to the By-laws, dated April 27, 1988, incorporated by
reference to Exhibit 3.2(b) to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-50228).
4.1 Instruments defining the rights of holders of long-term debt of
the Registrant are included in item 10 below.
10.1 1986 Employees Stock Option and Performance Unit Plan,
incorporated by reference to Exhibit 10.6 to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-3322).
10.2 1992 Executive Management Group Stock Option Plan, incorporated
by reference to Exhibit 10.2 to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-50228).
10.3(a) Trans Leasing International, Inc. Savings Plan (As Amended and
Restated Effective as of July 1, 1994), incorporated by reference to
Exhibit 99.1 to the Registrant's Registration Statement on Form S-8
(Registration No. 333-12291).
10.3(b) First Amendment to Trans Leasing International, Inc. Savings
Plan (As Amended and Restated Effective as of July 1, 1994), as amended
effective as of October 1, 1995, incorporated by reference to Exhibit 99.2
to the Registrant's Registration Statement on Form S-8 (Registration No.
333-12291).
10.4 Form of directors' warrants.
10.5 Trans Leasing International, Inc., 1996 Stock Option Plan,
incorporated by reference to Exhibit 10.45 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.
10.6 Employment Agreement, dated October 24, 1996, between the
Registrant and Michael J. Heyman.
10.7 Severance Agreement, dated October 31, 1996, between the
Registrant and Larry S. Grossman, incorporated by reference to Exhibit
10.46 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997.
10.8 Severance Agreement, dated October 31, 1996, between the
Registrant and Joseph Rabito, incorporated by reference to Exhibit 10.47 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997.
10.9 Employment Agreement, dated April 8, 1997, between the Registrant
and Kevin J. Dunworth.
50
10.10 Promissory Note, dated May 29, 1997, of Kevin J. Dunworth to the
Registrant.
10.11 Indenture dated as of October 1, 1992, between Registrant and
American National Bank and Trust Company of Chicago, as Trustee,
incorporated by reference to Exhibit 10.17 to the Registrant's Annual
Report on Form 10-K for the year ended June 30, 1993.
10.12 Amended and Restated Contribution and Sale Agreement, dated
August 2, 1994, between the Registrant and TL Lease Funding Corp. III,
incorporated by reference to Exhibit 10.29 to the Registrant's Annual
Report on Form 10-K for the year ended June 30, 1994.
10.13 Receivables Acquisition Agreement, dated August 2, 1994, between
TL Lease Funding Corp. III and Prudential Securities Secured Financing
Corporation, incorporated by reference to Exhibit 10.30 to the Registrant's
Annual Report on Form 10-K for the year ended June 30, 1994.
10.14 Pooling and Servicing Agreement, dated August 2, 1994, among the
Registrant, Prudential Securities Secured Financing Corporation and PSSFC
Equipment Lease Trust 1994-1, incorporated by reference to Exhibit 10.31 to
the Registrant's Annual Report on Form 10-K for the year ended June 30,
1994.
10.15 Indenture, dated August 2, 1994, between PSSFC Equipment Lease
Trust 1994-1 and Manufacturers and Traders Trust Company, incorporated by
reference to Exhibit 10.32 to the Registrant's Annual Report on Form 10-K
for the year ended June 30, 1994.
10.16 Trust Agreement, dated August 2, 1994, between Prudential
Securities Secured Financing Corporation and Bankers Trust (Delaware),
incorporated by reference to Exhibit 10.33 to the Registrant's Annual
Report on Form 10-K for the year ended June 30, 1994.
10.17 Administration Agreement, dated August 2, 1994, between PSSFC
Equipment Lease Trust 1994-1 and the Registrant, incorporated by reference
to Exhibit 10.34 to the Registrant's Annual Report on Form 10-K for the
year ended June 30, 1994.
10.18 Loan and Security Agreement, dated August 2, 1994, between
Prudential Securities Secured Financing Corporation and First Union
National Bank of North Carolina, incorporated by reference to Exhibit 10.35
to the Registrant's Annual Report on Form 10-K for the year ended June 30,
1994.
10.19(a) Amended and Restated Note Agreement, dated as of November 30,
1994, between the Registrant and certain lenders named therein,
incorporated by reference to Exhibit 10.37 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1994.
10.19(b) Amendment, to Amended and Restated Note Agreement, dated as
of December 30, 1996, incorporated by reference to Exhibit 10.38 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended December
31, 1996.
51
10.20(a) Amended and Restated Note Agreement, dated as of November 30,
1994, between the Registrant and Massachusetts Mutual Life Insurance
Company, incorporated by reference to Exhibit 10.39 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1994.
10.20(b) Amendment, to Amended and Restated Note Agreement, dated as
of December 30, 1996, incorporated by reference to Exhibit 10.39 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended December
31, 1996.
10.21 Amended and Restated Contribution and Sale Agreement, dated as
of October 6, 1995, among the Registrant and TL Lease Funding Corp. IV,
incorporated by reference to Exhibit 10.33 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995.
10.22 Pooling and Servicing Agreement, dated as of October 6, 1995,
among the Registrant, TL Lease Funding Corp. IV and TLFC IV Equipment Lease
Trust 1995-1, incorporated by reference to Exhibit 10.34 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995.
10.23 Indenture, dated as of October 6, 1995, between TLFC IV
Equipment Lease Trust 1995-1 and Manufacturers and Traders Trust Company,
incorporated by reference to Exhibit 10.35 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995.
10.24 Trust Agreement, dated as of October 6, 1995, between TL Lease
Funding Corp. IV and Bankers Trust (Delaware), incorporated by reference to
Exhibit 10.36 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995.
10.25 Administration Agreement, dated as of October 6, 1995, between
the Registrant and TLFC IV Equipment Lease Trust 1995-1, incorporated by
reference to Exhibit 10.37 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995.
10.26(a) Credit Agreement, dated as of January 31, 1996, among the
Registrant, the Banks (as defined therein) and The First National Bank of
Chicago, as agent, incorporated by reference to Exhibit 10.4 to the
Registrant's Quarterly Report Form 10-Q Report for the quarter ended
December 31, 1995.
10.26(b) Amendment, dated as of June 28, 1996, to Credit Agreement
dated as of January 31, 1996, among the Registrant, the Banks (as defined
therein) and The First National Bank of Chicago, as agent, incorporated by
reference to Exhibit 10.27 to the Registrant's Annual Report on Form 10-K
for the year ended June 30, 1996.
52
10.26(c) Amendment, dated as of December 30, 1996, to Credit
Agreement, dated as of January 31, 1996, among the Registrant, the Banks
(as defined therein) and The First National Bank of Chicago, as agent,
incorporated by reference to Exhibit 10.37 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996.
10.26(d) Consent to Extension, dated as of January 30, 1997, to Credit
Agreement, dated as of January 31, 1996, among the Registrant, the Banks
(as defined therein) and The First National Bank of Chicago, as agent,
incorporated by reference to Exhibit 10.44 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.
10.27 Amended and Restated Contribution and Sale Agreement, dated as
of November 26, 1996, between the 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.
10.28 Pooling and Servicing Agreement, dated as of November 26, 1996,
among the 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.
10.29 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.
10.30 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.
10.31 Administration Agreement, dated as of November 26, 1996, between
TLFC IV Equipment Lease Trust 1996-1 and the 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.
10.32(a) 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, incorporated by reference to Exhibit 10.40
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996.
10.32(b) Amendment No. 1 to Revolving Credit and term Loan and
Security Agreement, dated as of June 30, 1997, between TL Lease Funding
Corp. IV and First Union National Bank of North Carolina.
10.32(c) Amendment No. 2 to Revolving Credit and Term Loan and
Security Agreement, dated as of July 25, 1997, between TL Lease Funding
Corp. IV and First Union National Bank of North Carolina.
53
10.33(a) Limited Recourse Agreement, dated as of January 21, 1997,
between the Registrant and First Union National Bank of North Carolina,
incorporated by reference to Exhibit 10.41 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996.
10.33(b) Amendment No. 1 to Limited Recourse Agreement, dated as of
June 30, 1997, between the Registrant and First Union National Bank of
North Carolina.
10.33(c) Amendment No. 2 to Limited Recourse Agreement, dated as of
July 25, 1997, between the Registrant and First Union National Bank of
North Carolina.
10.34 Contribution and Sale, dated as of January 21, 1997, between the
Registrant and TL Lease Funding Corp. IV, incorporated by reference to
Exhibit 10.42 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996.
10.35 Servicing Agreement, dated as of January 21, 1997, among the
Registrant, TL Lease Funding Corp. IV and First Union National Bank of
North Carolina, incorporated by reference to Exhibit 10.43 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended December
31, 1996.
11.1 Earnings Per Share Computation.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No report on Form 8-K has been filed by the Registrant during the last
quarter covered by the report. One of the Company's wholly-owned special
purpose financing subsidiaries, TL Lease Funding Corp IV, files routine
monthly servicing reports on Form 8-K.
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, as of
this 26th day of September, 1997.
TRANS LEASING INTERNATIONAL, INC.
By: /s/LARRY S. GROSSMAN
Larry S. Grossman
Chairman of the Board and
Chief Executive Officer
55
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of this 26th day of
September, 1997.
/s/LARRY S. GROSSMAN Chief Executive Officer,
Larry S. Grossman Chairman of the Board of Directors
/s/MICHAEL J. HEYMAN President and Chief Operating Officer
Michael J. Heyman
/s/JOSEPH RABITO Executive Vice President, Operations
Joseph Rabito
/s/STEPHEN J. HUPP Vice President, Finance
Stephen J. Hupp (Principal Accounting and Financial
Officer)
/s/CLIFFORD V. BROKAW, III Director
Clifford V. Brokaw, III
/s/LARRY BIER Director
Larry Bier
/s/MARK C. MATTHEWS Director
Mark C. Matthews
/s/JOHN W. STODDER Director
John W. Stodder