UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended January_31,_1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ___________________
Commission File Number: 33-35664
EQUIPMENT_LEASING_CORPORATION_OF_AMERICA
(Exact name of registrant as specified in its charter)
DELAWARE 23-2408914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Suite_76,_501_Silverside_Road,_Wilmington,_Delaware_19809_
(Address of principal executive offices) (Zip Code)
(302)-798-2335
(Toll_Free:__1-800-523-5644)
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 15, 1995: $1.00_par_value_common_stock_-_1,000_
shares.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(A) AND
(B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
10-Q
EQUIPMENT LEASING CORPORATION OF AMERICA
Index
Part I. Financial_Information Page_Number
Item 1. Financial Statements
Balance Sheets as of January 31, 1995
(unaudited) and April 30, 1994 1
Statements of Operations; For the
nine months ended January 31, 1995 and 1994
and three months ended January 31, 1995
and 1994 (unaudited) 2
Statement of Changes in Shareholder's Equity;
For the nine months ended January 31, 1995 3
(unaudited)
Statements of Cash Flows For the
nine months ended January 31, 1995 and 1994
(unaudited) 4
Notes to Financial Statements 5
Item 2. Management's Narrative Analysis of
The Results of Operations as Permitted
by General Instruction H(1)(A) and (B) 7
Part II. Other_Information
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
EQUIPMENT LEASING CORPORATION OF AMERICA
BALANCE SHEETS
____________
ASSETS January_31,_1995 April_30,_1994
(unaudited)
Direct finance leases:
Aggregate future amounts
receivable under lease
contracts $16,823,638 $17,966,429
Estimated residual value
of equipment 1,829,060 1,905,976
Less:
Unearned income under
lease contracts (3,078,874) (3,413,082)
Advance payments __(514,758) __(498,884)
15,059,066 15,960,439
Allowance for doubtful
lease receivables __(478,754) (1,001,880)
14,580,312 14,958,559
Due from parent 4,070,185 2,500,816
Cash 1,434,637 7,587,864
Investment in U.S. Government
Securities (at amortized cost) 6,790,587 ---
Other assets ___402,404 ___438,150
TOTAL ASSETS $27,278,125 $25,485,389
LIABILITIES
Amounts payable to
equipment suppliers $8,749 $8,749
Accrued expenses and other
accounts payable 67,026 90,708
State income taxes 8,401 8,401
Demand, Fixed Rate and
Money Market Thrift
Certificates 23,596,406 21,810,991
Accrued interest payable _2,334,716 2,094,330
26,015,298 24,013,179
SHAREHOLDER'S EQUITY
Common stock $1 par value,
1,000 shares authorized,
issued and outstanding 1,000 1,000
Additional paid - in capital 999,000 999,000
Retained earnings ___262,827 __472,210
_1,262,827 1,472,210
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $27,278,125 $25,485,389
<FN>
SEE ACCOMPANYING NOTES
1
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENTS OF OPERATIONS
For the Nine Months Ended January 31, For the Three Months Ended January 31,
___1995___ ___1994___ ___1995___ ___1994___
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue:
Income earned under
direct finance lease contracts $2,202,991 $2,277,751 $ 695,210 $ 755,214
Total revenue 2,202,991 2,277,751 695,210 755,214
Costs and expenses:
Interest expense, net 1,002,069 1,191,281 328,219 412,003
General and administrative expenses 790,232 757,736 256,207 259,197
Provision for doubtful lease receivables 620,073 422,540 268,887 142,905
Total costs and expenses 2,412,374 2,371,557 853,313 814,105
Loss before provision
for income tax expense (209,383) (93,806) (158,103) (58,891)
Provision for income tax expense
- Federal (See Note 2) --- --- --- ---
- State --- --- --- ---
Loss $(209,383) $ (93,806) $(158,103) $ (58,891)
<FN>
SEE ACCOMPANYING NOTES
2
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
___Common_Stock__
($1.00 Par Value)
1,000 shares
____Authorized__ Additional Total
No. of shares Paid-In Retained Shareholder's
Issued Amount_ Capital___ Earnings Equity_______
Balance, April 30, 1994 1,000 $1,000 $999,000 $472,210 $1,472,210
Loss for the
nine month period
ended January 31, 1995
(unaudited) -- -- -- (209,383) (209,383)
_____ ______ ________ ________ __________
Balance, January 31, 1995 1,000 $1,000 $999,000 $262,827 $1,262,827
(unaudited)
<FN>
SEE ACCOMPANYING NOTES
3
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS
For the Nine Months Ended January 31,
___1995___ ___1994___
(unaudited) (unaudited)
OPERATING_ACTIVITIES
Loss $ (209,383) $ (93,806)
Adjustment to Reconcile Loss to Net Cash
from Operating Activities:
Amortization of Deferred Debt Expenses 182,088 121,969
Provision for doubtful lease receivables 620,073 422,540
Effects of Changes
in other Operating Items:
Accrued Expenses (23,682) (16,402)
Accrued Interest 240,386 289,713
Other (net) __(146,342) __(206,891)
Net Cash From Operating Activities ___663,140 ___517,123
INVESTMENT_ACTIVITIES
Excess of Cash Received
Over Lease Income Recorded 4,866,789 4,531,646
Receipt of Advance Payments 138,314 82,434
Purchase of Equipment
for Direct Finance Leases (5,246,929) (4,715,628)
Investment in U.S.
Government Securities (6,790,587)_ _______---
Net Cash Used in
Investing Activities (7,032,413) __(101,548)
FINANCING_ACTIVITIES
Proceeds from Issuance
of Demand and Fixed Rate Certificates 7,826,763 7,126,135
Proceeds (repayments) from
borrowings from Walnut (1,569,369) (1,153,373)
Redemption of Demand, Fixed
Rate, and Money Market Thrift
Certificates (6,041,348) (3,573,408)
Net Cash Provided by
Financing Activities ___216,046 _2,399,354
Increase (Decrease) in Cash (6,153,227) 2,814,929
Cash, Beginning of Year _7,587,864 _4,262,498
Cash, End of Period $1,434,637 $7,077,427
<FN>
SEE ACCOMPANYING NOTES
4
EQUIPMENT LEASING CORPORATION OF AMERICA
Notes to Interim Financial Statements
Nine Months Ended January 31, 1995 and 1994
1. FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the
audited financial statements and notes thereto as of April 30, 1994. The
accompanying financial statements have not been audited by independent
accountants, but in the opinion of management, such financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to summarize fairly the results of operations and are not
necessarily indicative of the results to be expected for the full year.
2. ACCOUNTING POLICIES
Accounting_for_Leases
Equipment Leasing Corporation of America ("ELCOA")'s lease contracts
provide for total noncancellable rentals which exceed the cost of leased
equipment and, accordingly, are accounted for as direct finance leases. At
inception, ELCOA records the gross lease receivable, the estimated residual
value of the leased equipment, and the unearned lease income. The unearned
lease income represents the excess of the gross lease receivable at
inception of the contract plus the estimated residual value over the cost
of the equipment being leased. ELCOA utilizes the "effective" or interest
method in recognizing the remainder of unearned income. For leases
originated after April 30, 1988, the Company has changed its method of
accounting to conform with the requirements of FAS No. 91 "Accounting for
Non Refundable Fees and Costs Associated with Originating or Acquiring
Loans and Initial Direct Cost of Leases". Under this method a portion of
the initial direct costs as defined by FAS No. 91 ($207,219 and $181,371
for the nine months ended January 31, 1995 and 1994, respectively), were
accounted for as part of the Investment in Direct Financing Leases.
Unearned income is earned and initial direct costs are amortized to income
using the effective method over the term of the lease.
ELCOA provides a provision for doubtful accounts based upon a periodic
review (not less than quarterly) of its outstanding lease portfolio, and
provides a direct charge against operations to increase the amount of
stated reserves for uncollectable accounts. Any writeoffs of uncollectable
leases reduce the stated amount of ELCOA's reserves. Write-offs of
delinquent leases totaled $1,143,199 and $348,503 during the nine month
periods ended January 31, 1995 and 1994, respectively, while ELCOA
increased these reserves by charges of $620,073 and $422,540 during the
nine month periods ended January 31, 1995 and 1994, respectively.
Income_Taxes
Effective May 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes" (SFAS 109),
which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
5
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the
tax payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities.
The net deferred tax asset as of May 1, 1994 includes deferred tax assets
(liabilities) attributable to the following temporary deductible (taxable)
differences:
Operating lease method vs. direct financing method $1,507,000
Provision for doubtful lease receivables 391,000
Other (___25,000)
Net deferred tax asset 1,873,000
Valuation allowance (1,873,000)
Net deferred tax asset after valuation allowance $ ----
A valuation allowance was considered necessary since it is more likely than
not that the Company will not realize the tax benefits of the deductible
differences.
The Company will be included in the consolidated federal income tax return
of its parent, Walnut Equipment Leasing Co., Inc. Based on a tax
allocation agreement, current federal taxes otherwise refundable (payable)
under a separate company computation will be received from (paid to) its
parent.
For the nine months ended January 31, 1995 and 1994, the provision for
federal and state income taxes consists of:
Nine Months Ended January 31,
___1995__ ___1994__
Current $435,697 $279,385
Deferred (435,697) (279,385)
$ --- $ ---
The deferred tax benefit is the change in the net deferred tax asset
arising from the available carry-back claim from its parent.
Other_Assets_and_Liabilities
Amounts payable to equipment suppliers in the amount of $8,749 as of
January 31, 1995 represents holdbacks from suppliers of equipment as
additional security for performance by the underlying lessee on the related
lease contract, and are payable at the termination of the contracts based
upon the lessee's compliance with terms of the lease contract.
Other assets at January 31, 1995 include $402,116 in deferred expenses, net
of amortization, representing costs directly related to the Company's
registration and solicitation of Demand, Fixed Rate and Money Market Thrift
Certificates. Registration expenses of $94,306 at January 31, 1995 are
being amortized on a straight-line basis over the estimated average lives
of the debt to be issued under the registration statement. Amortization of
these deferred registration expenses and solicitation costs charged to
income during the nine month periods ended January 31, 1995 and 1994 were
$182,088 and $121,961, respectively. Also, $307,810 in commissions paid
for sale of the Demand, Fixed Rate and Money Market Thrift Certificates
included in Other Assets at January 31, 1995 are being amortized over the
life of each respective certificate sold.
6
EQUIPMENT LEASING CORPORATION OF AMERICA
Management's_Narrative_Analysis_of_The_Results_of_Operations
as_Permitted_by_General_Instruction_H(1)(A)_and_(B)
Results_of_Operations_for_the_Nine_Months_ended_January_31,_1995_and_1994.
Revenues of $2,202,991 and $2,277,751 were recognized during the nine
months ended January 31, 1995 and 1994 respectively. Revenues decreased
$74,760 or 3.28% as a result of the decrease in outstanding aggregate
future receivables during these periods. The Company utilizes the
"effective" method in recognizing income from deferred income on its direct
finance lease portfolio. For a more detailed discussion of the manner in
which income is computed and recognized, see Footnote 2 to the Financial
Statements. During the nine month periods ended January 31, 1995 and 1994,
$6,860,033 and $6,187,213, respectively, in new gross finance lease
receivables were added to the portfolio of outstanding leases,
corresponding to equipment purchases of $5,246,929 and $4,715,628,
respectively. Unearned income under direct finance leases reflected a net
decrease of $334,208 and $550,583 during the nine months ended January 31,
1995 and 1994, respectively, which resulted from a decrease in the
aggregate amount of outstanding direct financing leases. Management
attributes the increase in new leases generated during the nine month
period ended January 31, 1995 to additional equipment purchases available
for purchase from its parent, Walnut.
Amounts paid under the service contract for lease origination in the
amounts of $207,219 and $181,371, respectively, were capitalized in
accordance with FAS No. 91 during the nine months ended January 31, 1995,
and 1994. See Footnote 2 to the Financial Statements for the nine month
interim period ended January 31, 1995.
General and administrative expenses for the nine month periods ended
January 31, 1995 and 1994 were $790,232 and $757,736, respectively.
Included in these expenses were $494,215 and $510,556, respectively, in
monthly servicing fees which are to reimburse Walnut for the servicing and
administration of ELCOA's outstanding leases which are charged at $6.50 per
account per month. As of January 31, 1995 and 1994, there were 8,158 and
8,662 direct finance leases outstanding, respectively. Also included in
general and administrative expenses for the nine months ended January 31,
1995 and 1994 are $182,088 and $121,961, respectively, which represents the
amortization of the deferred registration and solicitation expenses which
are included in "Other Assets" on the Balance Sheet at January 31, 1995 and
1994. See Footnote 2 to the Financial Statements for a more detailed
discussion of the calculation of the amortization expense. ELCOA paid
Walnut $19,500 during each of the nine month periods ended January 31, 1995
and 1994, for bookkeeping fees. These fees are to reimburse Walnut for the
routine bookkeeping functions performed for ELCOA and are charged at $500
per week. Also included in general and administrative expenses were
$73,359 and $81,461, respectively, in transfer service fees paid to
Financial Data, Inc., an affiliate. These expenses approximate the actual
costs incurred in the services performed, which decreased during fiscal
1994 as a result of lower costs incurred by Financial Data, Inc.
7
For the nine months ended January 31, 1995 and 1994, ELCOA recognized
expenses of $620,073 and $422,540, respectively, for its doubtful lease
receivable provision. See Footnote 2 to the Financial Statements. This
provision was recognized in order to maintain an adequate allowance, based
upon management's belief and historical experience, for anticipated
delinquencies and impairments from doubtful direct finance lease
receivables outstanding as of January 31, 1995 and 1994. During the nine
months ended January 31, 1995, ELCOA conducted an extensive review of the
collectibility of all past due accounts, and increased the amount of
write-offs in those situations where further costs in pursuing legal
remedies in collection were considered to be unwarranted.
As a result, past due accounts four or more monthly payments past due (on a
strict contractual basis) as of January 31, 1995 were $4,508,437 or 26.8%
of the $16,823,638 in aggregate future lease receivables outstanding at
that date. These delinquencies decreased $847,784 or 15.8% from the amount
of $5,356,221 (29.8% of aggregate receivables) at April 30, 1994.
Management is continuing its efforts in pursuit of collections of all past
due lease receivables.
During the nine months ended January 31, 1995 and 1994, ELCOA incurred
$1,002,069 and $1,191,281, respectively in interest expense (net) on the
Demand, Fixed Rate and Money Market Thrift Certificates. Accrued interest
thereon of $2,334,716 and $1,961,399, respectively, were outstanding at
January 31, 1995 and 1994. These expenses were reduced by interest income
of $520,412 and $259,563, respectively during the nine months ended January
31, 1995 and 1994. The increase in interest income during the nine months
ended January 31, 1995 is attributable in part to ELCOA's investment in
short-term U.S. Government treasury bills, having maturities of six months
or less. The interest rate on six month U.S. Treasury bills was 6.24% at
January 31, 1995 which represents an increase of 97% over the 3.16% rate on
similar securities at January 31, 1994. As such, the Company's interest
income reflects an increase of approximately 100% during the nine months
ended January 31, 1995. The average rates of interest paid on the
Certificates (including accrued interest thereon) during these periods were
approximately 8.2% and 8.9%, respectively, during the nine month periods
ended January 31, 1995 and 1994. Effective January 1, 1991, ELCOA and
Walnut, its parent, agreed to pay each other interest on any intercompany
advances during each month. Interest will be charged at a rate equal to 2%
above the prevailing "prime" rate of interest at Meridian Bank, Reading,
Pennsylvania. During the nine months ended January 31, 1995 and 1994,
ELCOA recognized $245,663 and $143,680, respectively, as interest income
under this agreement.
During the nine month periods ended January 31, 1995 and 1994, ELCOA
recognized no provisions for state income taxes, or federal income taxes.
See Footnote 2 to the Financial Statements.
Capital_Resources_and_Liquidity
ELCOA has financed its growth to date primarily from the proceeds of sale
of its debt securities, as well as from rental receipts from its
outstanding lease portfolio. To date ELCOA has not experienced any
difficulty in financing the purchase of new equipment for lease.
8
Taking into consideration new lease business, cash and unhypothecated
leases on hand, anticipated sales and redemptions of debt securities, and
other resources, it is management's opinion that its cash will be
sufficient to conduct its business and meet its anticipated obligations
during the current fiscal year. No assurance can be given that the
anticipated level of sales of its offering of Demand and Fixed Rate
Certificates will be attained. Sales of these Certificates were suspended
from the beginning of November, 1994 until January 6, 1995, after
declaration of effectiveness of a post-effective amendment to update the
disclosures concerning the change in the Company's independent accountants
during the period. See Item 5 to this report. Redemptions during the nine
months ended January 31, 1995 increased as a result of increased short-term
certificates outstanding, an increase in market interest rates in general
in comparison to the increased rates being offered on ELCOA's Certificates
and the suspension of new Certificate sales as noted. See the Statement of
Cash Flows on page 4 of this report for an analysis of the sources and uses
of cash by ELCOA during the nine month periods ended January 31, 1995 and
1994.
Item 5. Other Information
Post-Effective Amendment Number 2 to Form S-2 (SEC Registration Number
33-65814) relating to $29,000,000 in principal amount of Demand and Fixed
Rate Certificates was filed with the Securities and Exchange Commission on
December 23, 1994 and declared effective on January 6, 1995. The sale of
these securities had been suspended after ELCOA was notified by Glickman,
Berkovitz Levinson & Weiner, its former accountants of its filing of a
voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code.
ELCOA's Board of Directors approved the engagement of the accounting firm of
Cogen Sklar Levick, Bala Cynwyd, PA., on December 8, 1994 to reissue the
auditor's opinion on the financial statements for the three fiscal years
ended April 30, 1994. Subsequent to January 6, 1995, ELCOA recommenced the
offering of these securities to the public.
Item 6. Exhibits_and_Reports_on_Form_8-K
Reports_on_Form_8-K
Reports on Form 8-K and 8-K/A filed during the three months ended January
31, 1995, were filed on November 4, 1994, December 18, 1994, and January 6,
1995, relative to the change in ELCOA's independent accountants.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EQUIPMENT_LEASING_CORPORATION_OF_AMERICA
(Registrant)
S/William_Shapiro_______________________
William Shapiro, President and
Chief Financial Officer
March_16,_1995
Date
10