1
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 period ended October 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 class of
common stock, as of December 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.
2
EQUIPMENT LEASING CORPORATION OF AMERICA
INDEX
Part I. Financial Information Page Number
- ------------------------------ -----------
Item 1. Financial Statements
Balance Sheets as of October 31, 1995
(unaudited) and April 30, 1995 1-2
Statements of Operations; For the
Six months ended October 31, 1995 and 1994
and three months ended October 31, 1995
and 1994 (unaudited) 3
Statement of Changes in Shareholder's Equity;
For the Six months ended October 31, 1995 4
(unaudited)
Statements of Cash Flows For the
Six months ended October 31, 1995 and 1994
(unaudited) 5-6
Notes to Financial Statements 7
Item 2. Management's Narrative Analysis of
The Results of Operations as Permitted
by General Instruction H(1)(A) and (B) 10
Part II. Other Information
- ---------------------------
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
3
EQUIPMENT LEASING CORPORATION OF AMERICA
BALANCE SHEETS
------------
October 31, 1995 April 30, 1995
---------------- --------------
(unaudited)
ASSETS
Direct finance leases:
Aggregate future amounts
receivable under lease
contracts $16,886,882 $17,267,612
Estimated residual value
of equipment 1,719,791 1,831,613
Less:
Unearned income under
lease contracts (3,008,765) (3,172,713)
Advance payments (518,003) (528,314)
---------- ----------
15,079,905 15,398,198
Allowance for doubtful
lease receivables (1,025,327) (974,667)
---------- ----------
14,054,578 14,423,531
Due from parent 4,818,241 3,991,986
Cash and cash equivalents 10,301,582 8,908,798
Other assets 444,192 423,511
---------- ----------
TOTAL ASSETS $29,618,593 $27,747,826
=========== ===========
SEE ACCOMPANYING NOTES
1
4
EQUIPMENT LEASING CORPORATION OF AMERICA
BALANCE SHEETS - (Continued)
------------
October 31, 1995 April 30, 1995
---------------- --------------
(unaudited)
LIABILITIES
Amounts payable to
equipment suppliers $8,749 $8,749
Accrued expenses and other
accounts payable 52,660 63,888
State income taxes 8,401 8,401
Demand, Fixed Rate and
Money Market Thrift Certificates 26,297,140 24,521,875
Accrued interest payable 2,604,574 2,326,708
---------- ----------
28,971,524 26,929,621
SHAREHOLDER'S EQUITY
Common stock $1 par value,
1,000 shares authorized,
issued and outstanding 1,000 1,000
Variable Rate Cumulative
Preferred Stock, Series A,
$1 par value, 50,000 shares
authorized, none issued --- ---
Additional paid - in capital 999,000 999,000
Accumulated deficit (352,931) (181,795)
---------- ---------
647,069 818,205
---------- ---------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $29,618,593 $27,747,826
=========== ===========
SEE ACCOMPANYING NOTES
2
5
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENTS OF OPERATIONS
For the Six Months Ended October 31, For the Three Months Ended October 31,
1995 1994 1995 1994
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue:
Income earned under
direct finance lease contracts $1,362,988 $1,507,781 $ 648,467 $ 748,676
---------- ---------- ---------- ----------
Total revenue 1,362,988 1,507,781 648,467 748,676
---------- ---------- ---------- ----------
Costs and expenses:
Interest expense, net 703,083 673,850 348,167 343,962
General and administrative expenses 484,448 534,025 251,142 269,869
Provision for doubtful lease receivables 346,593 351,186 171,952 204,066
---------- ---------- ---------- ----------
Total costs and expenses 1,534,124 1,559,061 771,261 817,897
---------- ---------- ---------- ----------
Loss before provision
for income tax expense (171,136) (51,280) (122,794) (69,221)
Provision for state income tax expense --- --- --- (899)
---------- ---------- ---------- ----------
Net Loss $ (171,136) $ (51,280) $ (122,794) $ (68,322)
========== =========== =========== ===========
SEE ACCOMPANYING NOTES
3
6
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 Accumulated Shareholder's
Issued Amount Capital Deficit Equity
------ ------- ---------- ----------- -------------
Balance, April 30, 1995 1,000 $1,000 $999,000 $(181,795) $ 818,205
Net Loss for the
six month period
ended October 31, 1995
(unaudited) -- -- -- (171,136) (171,136)
----- ------ -------- --------- --------
Balance, October 31, 1995 1,000 $1,000 $999,000 $(352,931) $647,069
(unaudited) ===== ====== ======== ========= ========
SEE ACCOMPANYING NOTES
4
7
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS
For the Six Months Ended October 31,
1995 1994
----------- -----------
(unaudited) (unaudited)
OPERATING ACTIVITIES
- --------------------
Net Loss $ (171,136) $ (51,280)
Adjustment to Reconcile
Net Loss to Net Cash
from Operating Activities:
Amortization of Deferred Debt Expenses 108,024 128,401
Provision for doubtful lease receivables 346,593 351,186
Effects of Changes
in other Operating Items:
Accrued Expenses (11,228) (22,478)
Accrued Interest 277,866 209,006
Other (net) (128,705) (103,803)
---------- ----------
Net Cash From Operating Activities 421,414 511,032
---------- ----------
INVESTMENT ACTIVITIES
- ---------------------
Excess of Cash Received
Over Lease Income Recorded 3,275,370 3,190,686
Receipt of Advance Payments 91,004 97,014
Purchase of Equipment
for Direct Finance Leases (3,344,014) (3,671,854)
Investment in U.S.
Government Securities --- (7,639,343)
---------- ----------
Net Cash Provided by (Used in)
Investing Activities 22,360 (8,023,497)
---------- ----------
SEE ACCOMPANYING NOTES
5
8
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS - (Continued)
For the Six Months Ended October 31,
1995 1994
----------- -----------
(unaudited) (unaudited)
FINANCING ACTIVITIES
- --------------------
Proceeds from Issuance
of Demand and Fixed Rate Certificates $5,533,126 $5,145,079
Proceeds (repayments) from
borrowings from Walnut (826,255) (394,630)
Redemption of Demand, Fixed
Rate, and Money Market Thrift
Certificates (3,757,861) (3,769,062)
---------- ----------
Net Cash Provided by
Financing Activities 949,010 981,387
---------- ----------
Increase (Decrease) in Cash
and cash equivalents 1,392,784 (6,531,078)
Cash and cash equivalents,
Beginning of year 8,908,798 7,587,864
---------- ----------
Cash and cash equivalents,
End of Period $10,301,582 $1,056,786
========== ==========
SEE ACCOMPANYING NOTES
6
9
EQUIPMENT LEASING CORPORATION OF AMERICA
Notes to Interim Financial Statements
Six Months Ended October 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,
1995. 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
($130,565 and $140,647 for the six months ended October 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 $295,933 and $773,204 during the
six month periods ended October 31, 1995 and 1994, respectively, while
ELCOA increased these reserves by charges of $346,593 and $351,186 during
the six month periods ended October 31, 1995 and 1994, respectively.
7
10
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 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, 1995 includes deferred tax assets
(liabilities) attributable to the following temporary deductible (taxable)
differences:
Operating lease method vs. direct financing method $1,576,000
Provision for doubtful lease receivables 341,000
Other (34,000)
----------
Net deferred tax asset 1,883,000
Valuation allowance (1,883,000)
----------
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 six months ended October 31, 1995 and 1994, the provision for
federal and state income taxes consists of:
Six Months Ended October 31,
1995 1994
-------- --------
Current $564,216 $ 28,234
Deferred (564,216) (28,234)
-------- --------
$ --- $ ---
======== ========
The deferred tax benefit is the change in the net deferred tax asset
arising from the available carry-back claim from its parent.
8
11
OTHER ASSETS AND LIABILITIES
Amounts payable to equipment suppliers in the amount of $8,749 as of
October 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 October 31, 1995 include $443,904 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 $99,823 at October 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 six month periods ended October 31,
1995 and 1994 were $108,024 and $128,401, respectively. Also, $344,081 in
commissions paid for sale of the Demand, Fixed Rate and Money Market
Thrift Certificates included in Other Assets at October 31, 1995 are being
amortized over the life of each respective certificate sold.
9
12
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 SIX MONTHS ENDED OCTOBER 31, 1995 AND 1994.
Revenues of $1,362,988 and $1,507,781 were recognized during the six
months ended October 31, 1995 and 1994 respectively. Revenues decreased
$144,793 or 9.6% 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 six month periods ended October 31, 1995
and 1994, $4,358,100 and $4,859,513, respectively, in new gross finance
lease receivables were added to the portfolio of outstanding leases,
corresponding to equipment purchases of $3,344,014 and $3,671,854,
respectively. Unearned income under direct finance leases reflected a net
decrease of $163,948 and $118,059 during the six months ended October 31,
1995 and 1994, respectively, which resulted from a decrease in the
aggregate amount of outstanding direct financing leases. Management
attributes the decrease in new leases generated during the six month
period ended October 31, 1995 to a reduction in equipment available for
purchase from its parent, Walnut.
Amounts paid under the service contract for lease origination in the
amounts of $130,565 and $140,647, respectively, were capitalized in
accordance with FAS No. 91 during the six months ended October 31, 1995,
and 1994. See Footnote 2 to the Financial Statements for the six month
interim period ended October 31, 1995.
General and administrative expenses for the six month periods ended
October 31, 1995 and 1994 were $484,448 and $534,025, respectively.
Included in these expenses were $297,505 and $333,307, 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 October 31, 1995 and 1994, there were 7,294
and 8,452 accounts outstanding, respectively. Also included in general
and administrative expenses for the six months ended October 31, 1995 and
1994 are $108,024 and $128,401, respectively, which represents the
amortization of the deferred registration and solicitation expenses which
are included in "Other Assets" on the Balance Sheet at October 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 $13,000 during each of the six month periods ended October 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
$53,292 and $49,563 respectively, in transfer service fees paid to
Financial Data, Inc., an affiliate. These expenses approximate the actual
costs incurred in the services performed, which increased during fiscal
1996 as a result of higher costs incurred by Financial Data, Inc. from
increases in the amount of debt securities outstanding.
10
13
For the six months ended October 31, 1995 and 1994, ELCOA recognized
expenses of $346,593 and $351,186, 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 October 31, 1995 and 1994. During the three
months ended October 31, 1995, ELCOA continued to conduct an extensive
review of the collectibility of all past due accounts, and wrote-off 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 October 31, 1995 were $5,060,519 or
29.97% of the $16,886,882 in aggregate future lease receivables
outstanding at that date. These delinquencies increased $323,288 or 6.82%
from the amount of $4,737,231 (27.4% of aggregate receivables) at April
30, 1995. Management is continuing its efforts in pursuit of collections
of all past due lease receivables.
During the six months ended October 31, 1995 and 1994, ELCOA incurred
$703,083 and $673,850, respectively in interest expense on the Demand,
Fixed Rate and Money Market Thrift Certificates. Accrued interest thereon
of $2,604,574 and $2,303,336, respectively, were outstanding at October
31, 1995 and 1994. These expenses were reduced by interest income of
$488,328 and $320,862, respectively during the six months ended October
31, 1995 and 1994. The increase in interest income during the six months
ended October 31, 1995 is attributable in part to ELCOA's investment in
short-term U.S. Government Treasury Bills, having maturities of three
months or less. Although the interest rate on U.S. Treasury Bills was
relatively comparable at October 31, 1995 and 1994 (5.31% vs. 5.51%
respectively), ELCOA's investment in U.S. government Treasury Bills
increased $484,160 or 6.3% to $8,123,503 at October 31, 1995 from
$7,639,343 at October 31, 1994. The average rates of interest paid on the
Certificates (including accrued interest thereon) during these periods
were approximately 8.6% and 8.1%, respectively, during the six month
periods ended October 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 1/2% above the prevailing "prime" rate of interest at
Meridian Bank, Reading, Pennsylvania. During the six months ended October
31, 1995 and 1994, ELCOA included $240,887 and $139,496, respectively, as
interest income under this agreement.
During the six month periods ended October 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.
11
14
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. See the Statement of Cash Flows on pages 5
and 6 of this report for an analysis of the sources and uses of cash by
ELCOA during the six month periods ended October 31, 1995 and 1994.
ITEM 5. OTHER INFORMATION
On August 2, 1995, ELCOA filed a post-effective amendment to a
registration statement on Form S-2 in connection with the continuing offer
and sale of its debt securities. Sales of these securities were suspended
effective September 1, 1995, pending declaration of effectiveness of this
post-effective amendment. Post-Effective Amendment Number 4 to Form S-2
(SEC Registration Number 33-65814) relating to $13,500,000 in principal
amount of Demand and Fixed Rate Certificates remaining unsold from the
prior registration was declared effective September 14, 1995. The sale of
these securities commenced effective with that date.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the three months ended
October 31, 1995.
12
15
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
December 15, 1995
- -----------------
Date
13