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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 0-21425
HEALTHCARE FINANCIAL PARTNERS, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 52-1844418
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 WISCONSIN CIRCLE, SUITE 400
CHEVY CHASE, MARYLAND 20815
(Address of principal executive offices) (Zip code)
(301) 961-1640
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all documents and
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_
-
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock ($.01 par value) 13,405,177 as of September 30, 1998
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HEALTHCARE FINANCIAL PARTNERS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets at September 30, 1998
and December 31, 1997 (Unaudited)........................................................... 1
Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 1998 and September 30, 1997 (Unaudited).......................... 2
Condensed Consolidated Statements of Equity for the
year and nine months ended December 31, 1997 and September 30, 1998 (Unaudited)............. 3
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and September 30, 1997 (Unaudited)................................. 4
Notes to Condensed Consolidated Financial Statements (Unaudited)............................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................. 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. 15
Item 2. Changes in Securities......................................................................... 15
Item 3. Defaults Upon Senior Securities............................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders........................................... 15
Item 5. Other Information............................................................................. 15
Item 6. Exhibits and Reports on Form 8-K.............................................................. 15
SIGNATURES............................................................................................ 16
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1998 1997
-------------------- ------------------
<S> <C> <C>
Cash and cash equivalents $ 32,506,291 $ 18,668,703
Finance receivables 389,684,700 250,688,138
Less:
Allowance for losses on receivables 5,254,424 2,654,114
Unearned fees 3,505,985 3,161,237
------------ ------------
Net finance receivables 380,924,291 244,872,787
Deferred income taxes 1,850,525 1,041,520
Property and equipment, net 1,468,262 416,284
Goodwill 1,607,777 1,740,097
Investment in affiliates 11,334,647 767,244
Investments in securities 10,390,315 1,442,814
Due from affiliates 5,805,276
Prepaid expenses and other assets 3,797,221 3,405,497
------------ ------------
Total assets $449,684,605 $272,354,946
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ 35,500,000 $ 40,157,180
Commercial paper facility 125,284,463 101,179,354
Warehouse facility 30,549,160 27,932,520
Client holdbacks 4,194,437 6,173,260
Accounts payable to clients 393,799 834,367
Income taxes payable 1,784,586 5,138,144
Accounts payable and accrued expenses 5,853,809 2,217,947
Notes payable 3,648,144 115,286
Accrued interest 858,039 776,700
------------ ------------
Total liabilities 208,066,437 184,524,758
Stockholders' equity
Preferred stock, par value $.01 per share; 10,000,000 shares
authorized; none outstanding
Common stock, par value $.01 per share; 60,000,000 shares
authorized; 13,405,177 and 9,670,291 shares issued and
outstanding, respectively 134,052 96,703
Paid-in-capital 219,579,086 79,784,045
Retained earnings 22,006,954 7,949,440
Accumulated other comprehensive income (101,924)
------------ ------------
Total stockholders' equity 241,618,168 87,830,188
------------ ------------
Total liabilities and stockholders' equity $449,684,605 $272,354,946
============ ============
</TABLE>
See accompanying notes.
1
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- ---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ---------------------------------
1998 1997 1998 1997
--------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Fee and interest income:
Fee and interest income from finance
receivables $14,570,561 $7,740,139 $41,924,382 $17,689,014
Other interest income 199,683 93,299 648,056 211,734
----------- ---------- ----------- -----------
Total fee and interest income 14,770,244 7,833,438 42,572,438 17,900,748
Interest expense 3,173,511 1,984,344 9,843,851 5,086,069
----------- ---------- ----------- -----------
Net fee and interest income 11,596,733 5,849,094 32,728,587 12,814,679
Provision for losses on receivables 393,737 605,000 2,600,309 1,005,000
----------- ---------- ----------- -----------
Net fee and interest income after provision
for losses on receivables 11,202,996 5,244,094 30,128,278 11,809,679
Asset management income 673,834 987,102
----------- ----------- ----------- -----------
Operating income 11,876,830 5,244,094 31,115,380 11,809,679
Operating expenses:
Compensation and benefits 1,548,075 946,622 3,916,478 2,638,383
Commissions 12,496 52,146 60,702 124,729
Professional fees 431,057 79,403 996,294 365,365
Occupancy 232,291 56,832 524,020 159,867
Other 1,705,558 537,072 4,211,931 1,673,115
----------- ---------- ----------- -----------
Total operating expenses 3,929,477 1,672,075 9,709,425 4,961,459
Other income 978,942 418,439 2,046,996 1,110,126
----------- ---------- ----------- -----------
Income before income taxes 8,926,295 3,990,458 23,452,951 7,958,346
Income taxes 3,582,812 1,532,034 9,395,437 2,929,079
----------- ---------- ----------- -----------
Net income $ 5,343,483 $2,458,424 $14,057,514 $ 5,029,267
=========== ========== =========== ===========
Basic earnings per share $ .40 $ .25 $ 1.14 $ .67
=========== ========== =========== ===========
Weighted average shares outstanding 13,404,950 9,665,580 12,368,264 7,554,750
=========== ========== =========== ===========
Diluted earnings per share $ .39 $ .25 $ 1.10 $ .65
=========== ========== =========== ===========
Diluted weighted average shares outstanding 13,799,457 9,924,765 12,781,423 7,719,101
=========== ========== =========== ===========
</TABLE>
See accompanying notes.
2
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER
COMMON PAID-IN EARNINGS COMPREHENSIVE TOTAL
STOCK CAPITAL (DEFICIT) INCOME EQUITY
--------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 62,150 $ 26,704,234 $ (45,408) $ 26,720,976
Net and Comprehensive Income 7,994,848 7,994,848
Issuance of 3,450,000 shares of $.01
par value common stock 34,500 53,005,310 53,039,810
Common stock issuable under
directors' option plan 15,989 15,989
Common stock issued under
employee option plans 53 58,512 58,565
--------- ------------- ------------ ------------- ------------
Balance at December 31, 1997 96,703 79,784,045 7,949,440 87,830,188
------------
Comprehensive income:
Net income 14,057,514 14,057,514
Unrealized loss on investment
securities available-for-sale,
net of tax $(101,924) (101,924)
------------
Comprehensive Income 13,955,590
------------
Issuance of 3,657,500 shares of $.01
par value common stock 36,575 137,895,839 137,932,414
Common stock issuable under
directors' option plan 11,970 11,970
Common stock issued and issuable
under employee option plans 774 1,887,232 1,888,006
-------- ------------ ------------ ------------- ------------
Balance at September 30, 1998 $134,052 $219,579,086 $22,006,954 $(101,924) $241,618,168
======== ============ ============ ============= ============
</TABLE>
See accompanying notes.
3
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
1998 1997
------------------ -----------------
<S> <C> <C>
Operating activities
Net income $ 14,057,514 $ 5,029,267
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation 160,278 91,115
Amortization of goodwill 132,320 47,690
Stock compensation plans 52,249 11,991
Provision for losses on receivables 2,600,309 1,005,000
Deferred income taxes (809,005) (527,308)
Gain on investments (528,393)
Changes in assets and liabilities:
Increase in accounts receivable from related parties (5,805,276) (75,308)
Increase in prepaid expenses and other (391,724) (3,086,013)
(Decrease) increase in income taxes payable (2,291,590) 3,457,736
Increase in accrued interest 81,339 225,650
Increase (decrease) in accounts payable and accrued expenses 2,567,093 (1,044,686)
------------- -------------
Net cash provided by operating activities 9,825,114 5,135,134
INVESTING ACTIVITIES
Increase in finance receivables, net (142,630,636) (114,466,705)
Investment in affiliates (10,567,403)
Purchase of property and equipment, net (1,105,651) (201,546)
Investment in securities (2,425,421)
Purchase of limited partnership interest, net of cash acquired (15,200,257)
------------- -------------
Net cash used in investing activities (156,729,111) (129,868,508)
FINANCING ACTIVITIES
Net (payments) borrowings under line of credit (4,657,180) 4,373,925
Net borrowings under commercial paper facility 24,105,109 47,732,189
Net borrowings under warehouse facility 2,616,640 23,721,720
Issuance of common stock, net of expenses 138,750,763 53,087,878
Net (payments) borrowings under notes payable (73,747) 1,930
Distributions to limited partners, net (317,993)
------------- -------------
Net cash provided by financing activities 160,741,585 128,599,649
------------- -------------
Net increase in cash and cash equivalents 13,837,588 3,866,275
Cash and cash equivalents at beginning of period 18,668,703 11,734,705
------------- -------------
Cash and cash equivalents at end of period $ 32,506,291 $ 15,600,980
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest $ 9,762,512 $ 4,860,419
============= =============
Cash payments for income taxes $ 12,496,020 $ 688,633
============= =============
</TABLE>
See accompanying notes.
4
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of HealthCare Financial
Partners, Inc. (the "Company") for 1997 include the accounts of the Company and
the accounts of its wholly-owned subsidiaries, HCFP Funding, Inc., HCFP Funding
II, Inc., HCFP Funding III, Inc., Wisconsin Circle Funding Corporation,
Wisconsin Circle II Funding Corporation, and HealthCare Analysis Corporation.
For 1998, they also include HCFP of California, Inc. and two newly-formed
wholly-owned subsidiaries, HCFP REIT Management, Inc. and HCFP HC Management,
Inc. Significant intercompany accounts and transactions have been eliminated in
consolidation. The Company's principal activity is providing financing to
healthcare providers and to businesses in sub-markets of the healthcare industry
throughout the United States.
On February 9, 1998, the Company announced the formation of HealthCare
Financial Partners REIT, Inc., an entity that will elect to be taxed as a real
estate investment trust ("HCFP REIT"). Effective March 1998, the Company formed
HCFP REIT Management, Inc., a wholly owned subsidiary. This subsidiary was
formed to manage HCFP REIT, and will be compensated on a fee basis for
management services. The Company's management believes that HCFP REIT
represents an effective means for the Company to enhance its client
relationships by referring such clients' long-term real estate financing needs
to HCFP REIT.
HCFP REIT initially funded its operations with a private placement of
common stock (the "REIT Offering") which closed in May 1998. The net proceeds
were $136.2 million. The Company owns approximately 9.2% of HCFP REIT. The
Company's management anticipates that HCFP REIT will invest in financing
products not offered by the Company, which include permanent (long-term)
mortgage loans, other real estate secured debt, purchase-leaseback transactions
and other income-producing real estate-related assets in the healthcare
industry.
On March 17, 1998, the Company closed an equity offering in which it sold
3,657,500 shares of common stock and raised $137.9 million (after the
underwriters' discount and offering expenses).
Effective May 1, 1998, the Company purchased a 49% interest in a healthcare
consulting firm (ZA Consulting, LLC), an investment accounted for under the
equity method. Income for the three and nine months ended September 30, 1998,
included in other income on the condensed consolidated statement of operations,
was $315,000 and $566,000.
In July 1998, the Company's wholly-owned subsidiary HCFP HC Management,
Inc. entered into an agreement to manage the operations of Health Charge, Inc.
("Health Charge"). Health Charge offers a private label credit card to hospitals
and other healthcare providers which can be used by patients as a means of
paying the private pay portion of their treatment. Since entering the agreement,
the Company has earned $52,000 for its management activities. This amount is
included in asset management income.
5
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates. Operating results for the nine months ended
September 30, 1998 are not necessarily indicative of the results for the year
ending December 31, 1998. The notes to the consolidated financial statements
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 should be read in conjunction with these condensed
consolidated financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash and other liquid financial
instruments with an original maturity of three months or less.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
replacing the presentation required under Accounting Principles Board Opinion
No. 15, "Earnings Per Share." Under SFAS 128, basic earnings per share is based
on the weighted average number of common shares outstanding excluding any
dilutive effects of options, warrants and other dilutive securities, while
diluted earnings per share reflects the assumed conversion of all dilutive
securities. For the periods presented herein, all dilutive shares were
attributable to outstanding options. All prior period earnings per share have
been restated to conform with SFAS 128.
3. RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of SFAS 130 had no impact on
the Company's net income or shareholders' equity. SFAS 130 requires unrealized
gains or losses on the Company's investment securities available-for-sale, which
prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of SFAS 130.
During the first nine months of 1998 and 1997, total comprehensive income
amounted to $13.9 million and $5.0 million, respectively.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
HealthCare Financial Partners, Inc. (the "Company") is a specialty finance
company offering asset-based financing to healthcare providers, with a primary
focus on clients operating in sub-markets of the healthcare industry, including
long-term care, physician practices, and hospitals. The Company targets small
and middle market healthcare service providers with financing needs that range
from $250,000 to $30 million in healthcare sub-markets where growth,
consolidation or restructuring appear likely in the near to medium term. The
Company had 195 clients as of September 30, 1998, of which 58 were affiliates of
one or more clients. The average amount outstanding per client or affiliated
client group at September 30, 1998 was approximately $2.5 million. For the
three and nine month periods ended September 30, 1998, the Company's net income
was $5.3 million and $14.1 million, respectively, and for the three and nine
month periods ended September 30, 1997, the Company's net income was $2.5
million and $5.0 million, respectively.
The Company currently provides financing to its clients through (i) revolving
lines of credit secured by, and advances against, accounts receivable (the
"Accounts Receivable Program"), and (ii) term loans (accompanied, in certain
cases, by warrants) secured by first or second liens on real estate, accounts
receivable or other assets (the "STL Program"). Loans under the STL Program
generally have terms of three years or less and are often made in conjunction
with financing provided under the Accounts Receivable Program. To date, the
Company has not incurred any credit losses in either program, although it
periodically makes provisions for possible future losses in the ordinary course
of its business.
The Company has implemented a plan designed to ensure that all software used
by the Company in connection with its services will manage and manipulate data
involving the transition of dates from 1999 to 2000 without functional or data
abnormality and without inaccurate results related to such data. The Company
believes that all software presently in use that is significant to day-to-day
operations can effectively manage the transition of dates from those in 1999 to
those in 2000 without the issues enumerated above.
The Company is also assessing the ability of certain computing applications
which are not considered essential to day-to-day operations, such as various
desk top applications, to manage the transition of dates from 1999 to 2000. The
Company expects to have completed this aspect of its review and to have replaced
or remediated these applications by mid-1999.
To date, the execution of this plan has not had a material effect on the
Company's operating results, and the Company does not anticipate that the
continued execution of this plan will have a material effect on its operating
results. However, the Company is aware that some of its clients and payors may
not have implemented such programs. The failure by clients and payors to
implement necessary software changes may disrupt clients' computerized billing
and collection systems and adversely affect clients' cash flow and
collectibility of the Company's finance receivables. The Company is unable to
predict the effects that any such failure may have on the financial condition
and results of the operations of the Company. The Company is in the process of
developing a contingency plan for any disruption in the computerized billing and
collection systems of the Company's borrowers and their respective third-party
payors, and the Company expects to have such a contingency plan in place by mid-
1999.
In addition, the Company may be subject to general economic disruptions
stemming from problems related to year 2000 computer issues. Such circumstances
may unfavorably affect the manner in which the Company presently conducts its
business and, in turn, may negatively affect the Company's operating results.
7
<PAGE>
The Company is a Delaware corporation which was organized in April 1993 and
commenced its business in September 1993. Until September 13, 1996 the
Company's name was HealthPartners Financial Corporation. On that date its
corporate name was changed to HealthCare Financial Partners, Inc.
FINANCIAL INFORMATION
The following discussion should be read in conjunction with the condensed
consolidated financial statements, including the notes thereto, of HealthCare
Financial Partners, Inc.
RESULTS OF OPERATIONS
Three Month Period ended September 30, 1998 Compared to the Three Month Period
Ended September 30, 1997
Total fee and interest income increased from $7.8 million for the three month
period ended September 30, 1997 to $14.8 million for the three month period
ended September 30, 1998, an increase of 88.6%. The increase principally
resulted from an increase of $128.1 million in average finance receivables
outstanding due to the Company's growth in the Accounts Receivable and STL
Programs during the period. Interest earned from the Accounts Receivable and
STL Programs increased from $4.9 million for the three month period ended
September 30, 1997 to $10.3 million for the three month period ended September
30, 1998, which accounted for $5.4 million of the $6.9 million growth in total
fee and interest income between the periods. The Company increased its net
client base from 180 clients at September 30, 1997 to 195 clients at September
30, 1998. This net increase resulted from the addition of 145 new clients,
which replaced 120 clients that generally maintained smaller average balances.
Additionally, remaining clients increased their average borrowings from the
Company in the three month period ended September 30, 1998 as compared to the
prior year. The overall yields on finance receivables were 16.6% and 17.6% for
the three month periods ended September 30, 1998 and 1997, respectively. The
yields on the Accounts Receivable Program for the three month periods ended
September 30, 1998 and 1997 were 15.5% and 16.9%, respectively. The yields on
the STL Program for the three month periods ended September 30, 1998 and 1997
were 19.1% and 18.2%, respectively. Therefore, the increase in fee and interest
income was due to the growth in volume of finance receivables and increased
yields in the STL Program
Interest expense increased from $2.0 million for the three month period ended
September 30, 1997 to $3.2 million for the three month period ended September
30, 1998, while the Company's average cost of borrowed funds decreased slightly
from 8.3% for the three month period ended September 30, 1997 to 8.2% for the
three month period ended September 30, 1998, as a result of utilizing a lower-
cost commercial paper facility for a greater proportion of the borrowings for
the 1998 period. (See "Liquidity and Capital Resources".) The increase in
interest expense was the result of higher average borrowings required to support
the Company's growth. Because of the Company's overall growth in finance
receivables, net fee and interest income increased 98.0%, from $5.8 million for
the three month period ended September 30, 1997 to $11.0 million for the three
month period ended September 30, 1998. In general, the lower yield on finance
receivables coupled with the negligible decrease in the average cost of borrowed
funds experienced in the third quarter of 1998 resulted in a minimal decrease in
the annualized net interest margin from 13.2% for the three month period ended
September 30, 1997 to 13.0% for the three month period ended September 30, 1998.
The Company's provision for losses on receivables decreased from $605,000 for
the three month period ended September 30, 1997 to $394,000 for the three month
period ended September 30, 1998. The provision recognized during both periods
was the amount estimated by management that was necessary to maintain a
sufficient allowance for losses on receivables based on the composition of the
finance receivable portfolio at
8
<PAGE>
those times, which represented approximately one percent of the growth in
finance receivables during such periods. The Company experienced no credit
losses in either period.
As discussed in the footnotes to the financial statements appearing in Item 1,
the Company began managing HCFP REIT and Health Charge in 1998. Management fees
earned in connection with these activities were $674,000 for the three months
ended September 30, 1998. Expenses directly related to these activities for the
same period were $725,000. These expenses are included in the Company's
operating expenses.
Operating expenses increased from $1.7 million for the three month period
ended September 30, 1997 to $3.9 million for the three month period ended
September 30, 1998, a 135.0% increase. This increase resulted from a 63.5%
increase in compensation and benefits and a 308.7% increase in occupancy
expenses both resulting from Company growth and from assembling personnel to
support the management of HCFP REIT. Professional fees and other expenses also
increased by 442.9% and 217.6%, respectively, also in support of the Company's
growth.
Other income increased from $418,000 for the three month period ended
September 30, 1997 to $979,000 for the three month period ended September 30,
1998. The increase in other income was largely attributable to income of
$315,000 from an equity investment made in May 1998 in ZA Consulting, LLC, a
healthcare consulting firm, and $563,000 on net gains from sales of warrants and
other investments.
In 1997, documentation and closing fees (internal legal fees) were also
included in other income. Beginning in 1998, documentation and closing fees are
offset against internal legal expenses, and the net amount is amortized over the
terms of the associated finance receivable loans as an element of the yield on
finance receivables.
Net income increased from $2.5 million for the three month period ended
September 30, 1997 to $5.3 million for the three month period ended September
30, 1998, a 117.4% increase, primarily as a result of the overall growth in the
Company's finance receivables as described above.
Nine Month Period Ended September 30, 1998 Compared to the Nine Month Period
Ended September 30, 1997
Total fee and interest income increased from $17.9 million for the nine month
period ended September 30, 1997 to $42.6 million for the nine month period ended
September 30, 1998, an increase of 137.8%. The increase principally resulted
from an increase of $188.5 million in average finance receivables outstanding
due to the Company's growth in the Accounts Receivable and STL Programs during
the period. Interest earned from the Accounts Receivable and STL Programs
increased from $9.9 million for the nine month period ended September 30, 1997
to $28.3 million for the nine month period ended September 30, 1998, which
accounted for $18.4 million of the $24.7 million growth in total fee and
interest income between the periods. The Company increased its net client base
from 180 clients at September 30, 1997 to 195 clients at September 30, 1998.
This net increase resulted from the addition of 145 new clients, which replaced
120 clients that generally maintained smaller average balances. Additionally,
existing clients increased their average borrowings from the Company in nine
month period ended September 30, 1998 as compared to the prior year. The overall
yields on finance receivables were 17.1% and 16.9% for the nine month periods
ended September 30, 1998 and 1997, respectively. Therefore, the increase in fee
and interest income was due to growth in the volume of finance receivables as
well as a nominal increase in yield.
The yields on the Accounts Receivable Program for the nine month periods ended
September 30, 1998 and 1997 were 16.9% and 16.6%, respectively. The yields on
the STL Program for the same periods were
9
<PAGE>
17.6% and 16.9%, respectively. The Company has experienced higher yields in the
STL Program than the Accounts Receivable Program because various clients have
refinanced their STL Program bridge financings with long-term financing from
other lenders, and concurrent with such refinancings, the Company recognized the
balance of any unamortized commitment and success fees. However, the Company
generally expects the yields under the Accounts Receivable Program to be greater
than STL Program yields.
Interest expense increased from $5.1 million for the nine month period ended
September 30, 1997 to $9.8 million for the nine month period ended September 30,
1998, and the Company's average cost of borrowed funds was decreased from 8.6%
for the nine months ended September 30, 1997 to 8.3% for the same period in
1998. The interest cost reduction resulted from the utilization of a lower-cost
commercial paper facility for a greater proportion of the borrowings for the
Accounts Receivable Program loans for the 1998 period. (See "Liquidity and
Capital Resources".) The increase in interest expense resulted from higher
average borrowings required to support the Company's growth. Because of the
Company's overall growth in finance receivables, net fee and interest income
increased 155.5%, from $12.8 million for the nine month period ended September
30, 1997 to $32.7 million for the nine month period ended September 30, 1998.
The increased yield on finance receivables, as well as proportionately less
borrowings and less interest expense due to increased equity raised by the
Company in March 1998, resulted in an increase in the annualized net interest
margin from 12.1% for the nine month period ended September 30, 1997 to 13.1%
for the nine month period ended September 30, 1998.
The Company's provision for losses on receivables increased from $1.0 million
for the nine month period ended September 30, 1997 to $2.6 million for the nine
month period ended September 30, 1998. This increase was attributable to the
growth of the Company's finance receivables and the size of the Company's
average client balance, which are among the factors considered by the Company in
assessing the adequacy of its allowance for losses on receivables. In addition,
this increase included $1.1 million in specific reserves which were accrued in
the first and second quarters of 1998. The Company experienced no credit losses
in either of the nine-month periods ended September 30, 1998 and 1997.
As discussed in the footnotes to the financial statements appearing in Item 1,
the Company began managing HCFP REIT and Health Charge in 1998. Management fees
earned in connection with these activities were $987,000 for the nine months
ended September 30, 1998. Expenses directly related to these activities for the
same period were $1.2 million. These expenses are included in the Company's
operating expenses.
Operating expenses increased from $5.0 million for the nine month period ended
September 30, 1997 to $9.7 million for the nine month period ended September 30,
1998, a 95.7% increase. This increase resulted from a 48.4% increase in
compensation and benefits and a 227.8% increase in occupancy expenses both
resulting from Company growth and from assembling personnel to support the
management of HCFP REIT. Professional fees and other expenses also increased by
172.7% and 151.7%, respectively, also in support of the Company's growth.
Other income increased from $1.1 million for the nine month period ended
September 30, 1997 to $2.0 million for the nine month period ended September 30,
1998. The increase in other income was partly attributable to partnership
income of $506,000 in 1998. This partnership income resulted from the
foreclosure on, and subsequent sale of, a mortgage held by HCFP Funding III,
L.P. ("Funding III, L.P."). Funding III, L.P. is a limited partnership in which
HCFP Funding III, Inc., a wholly-owned subsidiary of the Company ("Funding
III"), is the General Partner. Funding III, L.P. participated in a Department
of Housing & Urban Development auction of a distressed mortgage loan portfolio,
from which it purchased four loans. Funding III holds a 1% general and a 49%
limited partnership interest in Funding III, L.P., and receives 60% of the
income from the partnership's activities, which is included in other income.
Additionally, other income
10
<PAGE>
includes $566,000 from an equity investment made in May 1998 in ZA Consulting,
LLC, a healthcare consulting firm, and $528,000 on net gains from sales of
warrants and other investments.
In 1997, documentation and closing fees (internal legal fees) were also
included in other income. Beginning in 1998, documentation and closing fees are
offset against internal legal expenses, and the net amount is amortized over the
terms of the associated finance receivable loans as an element of the yield on
finance receivables.
Net income increased from $5.0 million for the nine month period ended
September 30, 1997 to $14.1 million for the nine month period ended September
30, 1998 a 179.5% increase, primarily as a result of the overall growth in the
Company's finance receivables as described above.
EXCESS COLLATERAL
The Company's primary protection against credit losses on its Accounts
Receivable Program is excess collateral consisting of client accounts receivable
due from third-party payors which collateralize revolving lines of credit
secured by, and advances against, accounts receivable. The Company obtains a
first priority security interest in all of the clients' accounts receivable,
including receivables not financed by the Company. As a result, amounts loaned
or advanced to clients with respect to specific accounts receivable are cross-
collateralized by the Company's security interest in other accounts receivable
of the clients.
With respect to revolving lines of credit secured by accounts receivable, the
Company will extend credit only up to a maximum percentage, ranging from 65% to
85%, of the estimated net collectible value of the accounts receivable due from
third-party payors. The Company obtains a first priority security interest in
all of the clients' accounts receivable, and may apply payments received with
respect to the full amount of the clients' accounts receivable to offset any
amounts due from the clients. The estimated net collectible value of the
clients' accounts receivable thus exceeds at all times balances under lines of
credit secured by such accounts receivable.
With respect to advances against accounts receivable, the Company purchases
the clients' accounts receivable at a discount from the estimated net
collectible value of the accounts receivable. The Company will advance only 65%
to 85% of the purchase price (which is equal to aggregate net collectible value
minus a purchase discount) of any batch of accounts receivable purchased. The
excess of the purchase price for a batch of receivables over the amount advanced
with respect to such batch (a "client holdback") is treated as a reserve and
provides additional security to the Company, insofar as holdback amounts may be
applied to offset amounts due with respect to the related batch of client
receivables, or any other batch of client receivables. As is the case with the
revolving lines of credit, the Company obtains a first priority security
interest in all of the clients' accounts receivable.
In addition, under both programs the Company frequently obtains a security
interest in other assets of a client and may have recourse against personal
assets of the principals or parent company of a client.
Under the STL Program, the Company's term loans to clients are secured by a
first or second lien on various types of collateral, such as real estate,
accounts receivable, equipment, inventory and stock, depending on the
circumstances of each loan and the availability of collateral.
11
<PAGE>
The Company's results of operations are affected by its collections of client
accounts receivable. The Company's turnover of its finance receivables in its
Accounts Receivable Program, calculated by dividing total collections of client
accounts receivable for each of the following quarters by the average month end
balance of finance receivables during such quarter, was 2.6x for both quarters
ended March 31, 1998 and 1997; 2.2x for the quarter ended June 30, 1998; 2.8x
for the quarter ended June 30, 1997; 2.3x for the quarter ended September 30,
1998; and 2.7x for the quarter ended September 30, 1997. Quarterly average
turnover for the nine months ended September 30, 1998 was 2.4x and for the nine
months ended September 30, 1997 was 2.7x.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows resulting from operating activities provided sources of cash
amounting to $9.8 million for the nine month period ended September 30, 1998.
This compares to operating cash flows of $5.1 million for the nine month period
ended September 30, 1997. The most significant source of cash from operating
activities is derived from the Company's generation of net fee and interest
income from its finance receivables, and the more significant uses of cash from
internal operating activities include cash payments for compensation and
employee benefits, rent expense, and other administrative expenses. As the
Company's number of clients and resulting business opportunities have grown, the
Company has primarily used cash in the acquisition of finance receivables under
its Accounts Receivable and STL Programs.
The Company's financing activities have provided the necessary source of funds
for the acquisition of receivables. Financing has been obtained from both debt
and equity sources. The debt financing has been generated from draws on the a
$40 million revolving line of credit (the "Bank Facility"), with Fleet Capital
Corporation ("Fleet"), the sale of commercial paper through an investment grade
asset-backed commercial paper facility (the "CP Facility") with ING Baring (US)
Capital Markets ("ING") which enables the Company to borrow up to $200 million,
and a $100 million revolving warehouse line of credit (the "Warehouse Facility")
with Credit Suisse First Boston Mortgage Capital, LLC ("CSFB"). The source of
equity financing during the first nine months of 1998 was the sale of 3,657,500
shares of common stock to the public, which raised $137.9 million. During 1997
the Company sold 3,450,000 shares of common stock to the public and raised $53.0
million.
The Bank Facility is a revolving line of credit. The interest rates payable by
the Company under the Bank Facility are at prime and adjust based on the prime
rate of Fleet National Bank ("Fleet's prime rate"); however, the Company has the
option to borrow any portion of the Bank Facility in an integral multiple of
$500,000 based on the one-month, two-month, three-month or six-month LIBOR plus
2.0%, effective October 28, 1998. As of September 30, 1998 and December 31,
1997, $35.5 and $40.2 million, respectively, were outstanding under the Bank
Facility. The Bank Facility contains financial and operating covenants,
including the requirement that the Company maintain an adjusted tangible net
worth of not less than $5.0 million and a ratio of total debt to equity of not
more than 3.0 to 1.0. In addition, under the Bank Facility the Company is not
allowed to have at any time a cumulative negative cash flow (as defined by the
Bank Facility agreement) in excess of $1.0 million. The inter-creditor
arrangements entered into with Fleet in connection with the CP Facility excludes
borrowings under the CP Facility from debt for purposes of calculating the debt-
to-equity ratio for the Bank Facility. At September 30, 1998, the Company was in
compliance with all of its covenants under the Bank Facility. The expiration
date for the Bank Facility is March 29, 2002, subject to automatic renewal for
one-year periods thereafter unless terminated by either party which requires six
months prior written notice.
In December 1996, the Company entered into an agreement with ING for $100
million commitment under the CP Facility. On December 30, 1997, that commitment
was increased to $200 million. As of September 30,
12
<PAGE>
1998, $125.3 million of commercial paper was outstanding under the CP Facility.
As of December 31, 1997, $101.2 million of commercial paper was outstanding
under the CP Facility. The CP Facility requires the Company to transfer advances
and related receivables under its Accounts Receivable Program which meet certain
criteria to a bankruptcy remote, special purpose subsidiary of the Company. The
special purpose subsidiary pledges the finance receivables transferred by the
Company to Holland Limited Securitization Inc., a commercial paper conduit which
is an affiliate of ING (the "Conduit"). The Conduit lends against such pledged
assets through the issuance of commercial paper. The Company pays CP rates plus
1.75% to the Conduit. The CP Facility generally requires the maintenance of a
minimum overcollateralization percentage of 125%. Under the CP Facility, ING can
refuse to make any advances in the event the Company fails to maintain a
tangible net worth of at least $50 million. At September 30, 1998, the Company
was in compliance with all of its covenants under the CP Facility. The maturity
date for the CP Facility is December 5, 2001. However, the CP Facility may be
terminated by the Company at any time after December 5, 1999, without penalty.
On June 27, 1997, the Company entered into an agreement with CSFB under the
Warehouse Facility. Under the terms of the Warehouse Facility, the Company is
able to securitize certain loans under the Company's STL Program. The Company
had a total borrowing capacity under the agreement of $50 million as of December
31, 1997. In February 1998, the commitment was raised to $100 million. As of
September 30, 1998 and December 31, 1997, the Company had $30.5 million and
$27.9 million, respectively, outstanding under the Warehouse Facility. The
Warehouse Facility requires that the amount outstanding under the financing
agreement may not exceed 88% of the principal amount of the STL Program loans
securitized. Interest will accrue under the financing agreement at a rate of
LIBOR plus 3.75% on the first $50 million and Libor plus 3.0% on the second $50
million. The Warehouse Facility requires that the loans advanced by the Company
do not exceed 95% of the appraised value of the real estate or a multiple of the
underwritten cash flow of the borrower, that the weighted average yield of
advances under the Warehouse Facility must exceed the prime rate of interest
plus 3%, that the maximum weighted average loan to value of advances under the
Warehouse Facility must be no greater than 85%, and that no loan in the
portfolio has a life greater than five years. Additionally, the Warehouse
Facility requires that, to the extent that the Company makes advances in amounts
greater than $7.5 million to any borrower, that excess is advanced by the
Company through other sources. The commitment to make advances under the
Warehouse Facility terminates on September 27, 1999. Subsequent to that date, no
new loans may be securitized under the existing agreement, however previous
loans securitized will remain outstanding until they have been fully repaid.
Additionally, under the terms of the agreement, the Company has the right to
repurchase any assets securitized at a price equal to the fair market value of
such assets. At September 30, 1998, the Company was in compliance with all of
the covenants of the agreement.
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to grow and the future of its operations
will be affected by the availability and the terms of financing. The Company
expects to fund its future financing activities principally from (i) the CP
Facility, which expires on June 5, 2001, (ii) the Bank Facility, which expires
on March 29, 2002, subject to automatic renewals for one-year periods thereafter
unless terminated by either party and (iii) the Warehouse Facility, which
expires on June 27, 1999. While the Company expects to be able to obtain new
financing facilities or renew these existing financing facilities and to have
continued access to other sources of credit after expiration of these
facilities, there is no assurance that such financing will be available, or, if
available, that it will be on terms favorable to the Company.
INTEREST RATE SENSITIVITY
Interest rate sensitivity refers to the change in interest spread between the
yield on the Company's portfolio and the cost of funds necessary to finance the
portfolio (i.e., the Bank Facility, the CP Facility and the Warehouse Facility)
resulting from changes in interest rates. To the extent that interest income
and
13
<PAGE>
interest expense do not respond equally to changes in interest rates, or that
all rates do not change uniformly, earnings are affected. Additionally, to the
extent that the Company's portfolio is not levered, when interest rates are
rising, the Company's net interest income rises; similarly, when interest rates
are falling, the Company's interest income decreases. The interest rates charged
on revolving lines of credit secured by accounts receivable adjust based upon
changes in the prime rate. The fees charged on advances against accounts
receivable are fixed at the time of any advance against a batch of receivables,
although such fees may increase depending upon the timing of collections of
receivables within the batch. The interest rates on the Company's term loans
generally adjust based on the prime rate. The interest rates payable by the
Company under the Bank Facility adjust, based on Fleet's prime rate; however,
the Company has the option to borrow any portion of the Bank Facility in an
integral multiple of $500,000 based on the one-month, two-month, three-month or
six-month LIBOR plus 2.0%. The interest rate on the CP Facility adjusts based
upon changes in commercial paper rates. Because the Company finances most of the
Accounts Receivable Program's activity through the CP Facility, there exists
some interest rate risk since the interest rate on advances to the Company's
clients under the Accounts Receivable Program will adjust based on the prime
rate, and the interest rate on most of the Company's liabilities under the CP
Facility will adjust based on commercial paper rates. Such interest rate
sensitivity on the Accounts Receivable Program portfolio may result in increased
interest expense for the Company, but is not expected to have a material adverse
effect on the Company's net interest income if interest rates change.
Additionally, because advances against accounts receivable are generally fixed
and financed with the CP Facility, which has rates that adjust with changes in
commercial paper rates, there exists interest rate sensitivity with respect to
advances against accounts receivable, and if interest rates increase
significantly, such an increase could have an adverse effect on the Company's
net interest income. However, this interest rate sensitivity is mitigated by the
fact that (i) advances against accounts receivable comprise only 3.1% of the
finance receivables in the Accounts Receivable Program as of September 30, 1998,
and (ii) the Company does not make long-term commitments with respect to
advances against accounts receivable and therefore, retains substantial
flexibility to negotiate fees based on changes in interest rates.
INFLATION
Inflation has not had a significant effect on the Company's operating results
to date.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are involved in various pending or
threatened legal proceedings arising from the conduct of their business. In
some instances, these proceedings include claims for punitive damages and
similar types of relief in unspecified or substantial amounts, in addition to
amounts for alleged contractual liability or requests for equitable relief.
While it is not possible to determine the ultimate disposition of each of these
proceedings at this time, the Company believes that the ultimate disposition of
such proceedings, individually and in the aggregate, will not have a material
adverse effect on the financial position or results of operations of the Company
and its subsidiaries.
Item 2. Changes in Securities -- Not Applicable
Item 3. Defaults Upon Senior Securities -- Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders --Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Supplementary Exhibits
----------------------
99. Supplementary Data:
Additional financial and statistical information
15
<PAGE>
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.
HEALTHCARE FINANCIAL PARTNERS, INC.
DATE: /s/ Edward P. Nordberg, Jr.
---------------- ----------------------------------
By: EDWARD P. NORDBERG, JR.
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
16
<PAGE>
EXHIBIT 99
SUPPLEMENTARY DATA
As of and for the Three and Nine Months Ended September 30,1998
1) CONDENSED BALANCE SHEETS (UNAUDITED):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997 (1)
-------------------- --------------------
<S> <C> <C>
Cash and cash equivalents $ 32,506,291 $ 18,668,703
Finance receivables 389,684,700 250,688,138
Less:
Allowance for losses on receivables 5,254,424 2,654,114
Unearned fees 3,505,985 3,161,237
-------------------- -------------------
Net finance receivables 380,924,291 244,872,787
Deferred income taxes 1,850,525 1,041,520
Property and equipment, net 1,468,262 416,284
Goodwill 1,607,777 1,740,097
Investments in affiliates 11,334,647 767,244
Investment securities 10,390,315 1,442,814
Due from affilitates 5,805,276
Prepaid expenses and other assets 3,797,221 3,405,497
-------------------- -------------------
Total assets $449,684,605 $272,354,946
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ 35,500,000 $ 40,157,180
Commercial paper facility 125,284,463 101,179,354
Warehouse facility 30,549,160 27,932,520
Client holdbacks 4,194,437 6,173,260
Accounts payable to clients 393,799 834,367
Income taxes payable 1,784,586 5,138,144
Accounts payable and accrued expenses 5,853,809 2,217,947
Notes payable 3,648,144 115,286
Accrued interest 858,039 776,700
-------------------- -------------------
Total liabilities 208,066,437 184,524,758
Stockholders' equity
Preferred stock, par value $.01 per share;
10,000,000 shares authorized; none outstanding
Common stock, par value $.01 per share;
60,000,000 shares authorized;
13,405,177 and 9,670,291 shares
issued and outstanding respectively 134,052 96,703
Paid-in-capital 219,579,086 79,784,045
Retained earnings 21,905,030 7,949,440
-------------------- -------------------
Total stockholders' equity 241,618,168 87,830,188
-------------------- -------------------
Total liabilities and equity $449,684,605 $272,354,946
==================== ===================
</TABLE>
(1) The balance sheet as of December 31,1997 has been derived from audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPT. 30, AS OF DEC. 31, AS OF SEPT 30,
1998 1997 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Finance Receivables:
Accounts Receivable Program $262,052,365 67% $185,727,628 74% $172,170,799 79%
STL Program 127,632,335 33% $ 64,960,510 26% 46,331,153 21%
------------------------------------------------------------------
Total $389,684,700 100% $250,688,138 100% $218,501,952 100%
==================================================================
Allowance for losses on receivables $ 5,254,424 $ 2,654,114 $ 2,343,992
================= ============= ============
Total Assets $449,684,605 $272,354,946 $236,832,950
================= ============= ============
Debt
Line of Credit $ 35,500,000 19% $ 40,157,180 24% $ 26,203,662 19%
Commercial Paper Facility 125,284,463 65% 101,179,354 60% 84,914,287 63%
Warehouse Facility 30,549,160 16% 27,932,520 16% 23,721,720 18%
------------------------------------------------------------------
Total $191,333,623 100% $169,269,054 100% $134,839,669 100%
==================================================================
Total Liabilities $208,066,437 $184,524,758 $151,982,838
================= ============= ============
Client Holdbacks $ 4,194,437 $ 6,173,260 $ 10,304,490
================= ============= ============
Total Debt $191,333,623 44% $169,269,054 66% $134,839,669 61%
Total Stockholders' Equity 241,618,168 56% 87,830,188 34% 84,850,112 39%
------------------------------------------------------------------
Capitalization $432,951,791 100% $257,099,242 100% $219,689,781 100%
==================================================================
Book Value Per Share $ 18.02 $ 9.08 $ 8.78
================= ============= ============
</TABLE>
Note: See attached Balance Sheets for additional information
3) CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------------------- -------------------------------------
1998 1997 1998 1997
--------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Fee and interest income
Fee and interest income from finance
receivables.......................... $ 14,570,561 $ 7,740,139 $ 41,924,382 $17,689,014
Other interest income................ 199,683 93,299 648,056 211,734
--------------------- ----------------- ----------------- ---------------
Total fee and interest income.... 14,770,244 7,833,438 42,572,438 17,900,748
Interest expense.......................... 3,173,511 1,984,344 9,843,851 5,086,069
--------------------- ----------------- ----------------- ---------------
Net fee and interest income...... 11,596,733 5,849,094 32,728,587 12,814,679
Provision for losses on receivables....... 393,737 605,000 2,600,309 1,005,000
--------------------- ----------------- ----------------- ---------------
Net fee and interest income
after provision for losses
on receivables................... 11,202,996 5,244,094 30,128,278 11,809,679
Asset management income................... 673,834 987,102
--------------------- ----------------- ----------------- ---------------
Operating income............. 11,876,830 5,244,094 31,115,380 11,809,679
Operating expenses........................ 3,929,477 1,672,075 9,709,425 4,961,459
Other income.............................. 978,942 418,439 2,046,996 1,110,126
--------------------- ----------------- ----------------- ---------------
Income before income taxes................ 8,926,295 3,990,458 23,452,951 7,958,346
Income taxes.............................. 3,582,812 1,532,034 9,395,437 2,929,079
--------------------- ----------------- ----------------- ---------------
Net income................................ $ 5,343,483 $ 2,458,424 $ 14,057,514 $ 5,029,267
===================== ================= ================= ===============
Basic earnings per share.................. $ 0.40 $ 0.25 $ 1.14 $ 0.67
Weighted average shares outstanding....... 13,404,950 9,665,580 12,368,264 7,554,750
Diluted earnings per share................ $ 0.39 $ 0.25 $ 1.10 $ 0.65
Diluted weighted average shares
outstanding.............................. 13,799,457 9,924,765 12,781,423 7,719,101
</TABLE>
<PAGE>
4) COMMON SHARES INFORMATION:
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE
QUARTER ENDED YEAR ENDED QUARTER ENDED
SEPT. 30, DEC. 31, SEPT. 30,
1998 1997 1997
------------------- ----------------- -------------------
<S> <C> <C> <C>
Total Shares Outstanding 13,405,177 9,670,291 9,669,341
Weighted Average Shares Outstanding 13,404,950 8,087,857 9,665,580
Diluted Weighted Average Shares
Outstanding 13,799,457 8,310,111 9,924,765
</TABLE>
5) SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
AS OF OR FOR THE QUARTER ENDED AS OF OR FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------------------------------ -----------------------------------
<S> <C> <C> <C> <C>
Number of clients being financed (1) 195 180 195 180
Number of loans to clients 228 203 228 203
YIELD STATISTICS:
- ---------------------------
Yield on finance receivables 16.55% 17.57% 17.08% 16.85%
Yield on Accounts Receivable Program 15.45% 16.91% 16.88% 16.60%
receivables
Yield on STL Program receivables 19.05% 18.21% 17.56% 16.92%
FINANCE SPREAD AND MARGIN:
- -------------------------------------------
Average yield on finance receivables 16.55% 17.57% 17.08% 16.85%
Average cost of debt 8.20% 8.25% 8.25% 8.55%
----------- ----------- ---------- ----------
Net fee and interest spread 8.35% 9.32% 8.83% 8.30%
Net fee and interest margin 12.95% 13.19% 13.07% 12.06%
YEAR-TO-YEAR GROWTH STATISTICS:
- -------------------------------------------
Finance Receivables 78.34% 174.61% 78.34% 174.61%
Fee and interest income 88.55% 150.75% 37.82% 115.98%
Net income (1996 data pro forma) 117.35% 200.33% 79.51% 152.89%
Diluted earnings per share (1996 data pro 56.32% 79.70% 68.81% 94.55%
forma)
OTHER OPERATING STATISTICS:
- -------------------------------------------
Return on average working assets 6.07% 5.43% 5.73% 4.73%
Finance receivable turnover ratio (# times) 2.3 2.7 2.4 2.7
Allowance for losses as a percentage of
finance receivables 1.35% 1.07% 1.35% 1.07%
Total operating expenses as a percentage
of average earning assets (2) 3.74% 3.70% 3.53% 4.67%
Efficiency ratio (3) 23.72% 21.35% 21.68% 27.72%
Leverage ratio (debt/equity) 0.79 1.59 0.79 1.59
Equity/Assets 53.73% 35.83% 53.73% 35.83%
</TABLE>
(1) Includes 58 and 82 clients who were affiliates of one or more clients in
1998 and 1997, respectively.
(2) Operating expenses are net of REIT Management expenses.
(3) Period to date operating expenses/total fee and interest income plus asset
management income.
1998 expenses exclude certain one time non recurring expenses
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 32,506,291 32,506,291
<SECURITIES> 21,724,962 21,724,962
<RECEIVABLES> 386,178,715 386,178,715
<ALLOWANCES> 5,254,424 5,254,424
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 1,826,540 1,826,540
<DEPRECIATION> 358,278 358,278
<TOTAL-ASSETS> 449,684,605 449,684,605
<CURRENT-LIABILITIES> 208,066,437 208,066,437
<BONDS> 0 0
0 0
0 0
<COMMON> 134,052 134,052
<OTHER-SE> 241,484,116 241,484,116
<TOTAL-LIABILITY-AND-EQUITY> 449,684,605 449,684,605
<SALES> 14,770,244 42,572,438
<TOTAL-REVENUES> 16,423,020 45,606,536
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 3,929,477 9,709,425
<LOSS-PROVISION> 393,737 2,600,309
<INTEREST-EXPENSE> 3,173,511 9,843,851
<INCOME-PRETAX> 8,926,295 23,452,951
<INCOME-TAX> 3,582,812 9,395,437
<INCOME-CONTINUING> 5,343,483 14,057,514
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,343,483 14,057,514
<EPS-PRIMARY> .40 1.14
<EPS-DILUTED> .39 1.10
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 15,600,980 15,600,980
<SECURITIES> 0 0
<RECEIVABLES> 218,501,952 218,501,952
<ALLOWANCES> 2,343,992 2,343,992
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 515,715 515,715
<DEPRECIATION> 181,887 181,887
<TOTAL-ASSETS> 236,832,950 236,832,950
<CURRENT-LIABILITIES> 151,982,838 151,982,838
<BONDS> 0 0
0 0
0 0
<COMMON> 96,694 96,694
<OTHER-SE> 84,753,418 84,753,418
<TOTAL-LIABILITY-AND-EQUITY> 236,832,950 236,832,950
<SALES> 7,951,873 17,900,748
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,672,075 4,961,459
<LOSS-PROVISION> 605,000 1,005,000
<INTEREST-EXPENSE> 1,984,344 5,086,069
<INCOME-PRETAX> 3,990,458 7,958,346
<INCOME-TAX> 1,532,034 2,929,079
<INCOME-CONTINUING> 2,458,424 5,029,267
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,458,424 5,029,267
<EPS-PRIMARY> 0.25 0.67
<EPS-DILUTED> 0.25<F1> 0.65<F1>
<FN>
<F1> DILUTED EPS CHANGED DUE TO NEW CALCULATION OF WTD AVERAGE SHARES
OUTSTANDING UNDER FASB-128.
</FN>
</TABLE>
